An assessment of the impact of post dollarisation corporate mergers and acquisitions on equity value of corporate entities in Zimbabwe

Abstract

The purpose of the study was to assess the impact of corporate mergers and acquisitions on the value of shareholders’ equity. The study was motivated by an increase in the number of studies showing inconsistent results on the impact of mergers and acquisitions on the value of shareholders’ equity. The objectives of the research were to investigate the motives behind and the methods used to effect the merger and acquisition activities in Zimbabwe; and to assess the subsequent benefits of such activities. The hypothesis of the study was that combined companies should exhibit improved financial performance which translates to an increase in equity value after the transaction. In order to achieve the objectives, both the quantitative and qualitative aspects of the study were taken into consideration. Three in-depth interviews were conducted with top executives of three out of the six acquiring companies to gather qualitative data and the evaluation of financial performances for a total of six acquiring companies using ratio analysis for premerger and post-merger periods was conducted to cater for the quantitative analysis aspect. A regression model was used to determine how each of the ratios applied affected the value of shareholders’ equity. The major findings were that growth and lower production/operation costs were the common motives for mergers in Zimbabwe. Also, of the interviewed sample, all mergers were financed by both cash and share swap. The evaluation of financial performance showed that the financial position of firms after the merger had decreased as compared to that before the merger. The conclusion arrived at was that merger and acquisition activities negatively impact the value of shareholders’ equity. It was recommended that firms consider organic growth as opposed to inorganic growth.