Exploring the long-term trade-off between efficiency and value creation in horizontal M&As: Evidence from Nigeria

Abstract

Purpose

The purpose of this paper is to investigate the voluntary horizontal M&A impact on operating performance in Nigeria between 1995 and 2012 under different complementary approaches.

Design/methodology/approach

Residual income valuation (RIV), economic value-added (EVA), data envelopment analysis (DEA) and stochastic frontier analysis (SFA).

Findings

Results showed a statistically significant improvement in the technical efficiency of both bidder and target companies, the reduced efficiency levels of the bidder firms under DEA scores reveals the specifics of the productive technology. This may suggest that resulting merged companies in Nigeria may have not even become too big in scale or even reached the most productive scale size, despite their almost monopolistic position in the sector. This happens because the scale size of the sector is small per se, implying that the investments necessary to achieve synergistic gains have to be partially covered by price increases.

Practical implications

This study will guide both the M&A practitioners, investment banks, and the policy makes. In terms of having to review M&A policy as well as seeing to the improvement in the infrastructural needs.

Social implications

With improved performance, employment can be created thereby giving employment to the youths. This will reduce social problems.

Originality/value

From the literature and records, no long-term operating performance on voluntary mergers and acquisitions has not been carried out in Nigeria. The paper seeks to know the fundamental value of the firms after these transactions with the current methodology that is acceptable from the literature.

Citation

Akpan, M.N.U., Aik, N.C., Wanke, P.F. and Chau, W.H. (2018), "Exploring the long-term trade-off between efficiency and value creation in horizontal M&As: Evidence from Nigeria", African Journal of Economic and Management Studies, Vol. 9 No. 2, pp. 130-147. https://doi.org/10.1108/AJEMS-06-2017-0139