Mergers and Acquisition and Financial Performance of Insurance Companies

Abstract

The purpose of this study was to determine the effect of mergers and acquisition on financial performance of insurance companies in Kenya. The specific objectives were; determine effect of marketing networks, investigate effect of product merger, determine effect of asset merger and to assess the effect of price merger on financial performance of insurance companies in Kenya. The study design was panel design targeting11 insurance companies that had undergone merger and acquisition for the period 2000-2020. Secondary data covering the years 2000 to 2020 was collected for the study. The pre and post M&A performance ratios was compared to see if there was any statistically significant change in performance of the insurance companies before and after M&A using panel regression analysis. The findings revealed that marketing network, product merger, asset merger and price merger were able to contribute to 33.05% of the effects of mergers and acquisition on the financial performance of insurance firms in Kenya pre- merger/acquisition. However, the four independent variables were able to explain 53.11percent of the variation in financial performance of merged/acquired insurance companies in Kenya. The regression analysis results pre-merger revealed that there was a positive and significant relationship between marketing network and financial performance (β =.1240957, p=0.009), product merger had positive but insignificant influence on financial performance (β =.0082009, p=0.207), asset merger had positive and significant effect on financial performance (β =.012258, p=0.048), log of price merger had positive, but insignificant effect on financial performance (β =.0006586, p=0.978). However, post mergers results revealed that there was a positive and significant relationship between marketing network and financial performance of insurance companies in Kenya (β =.282855, p=0.000), product merger had positive but insignificant influence on financial performance post-merger (β =.0100136, p=0.199), asset merger had positive and significant effect on financial performance (β =.0179906, p=0.013), the log of price merger had positive, and significant effect on financial performance (β =.0013557, p=0.978).The study concludes that post-merger financial performance was higher than pre-merger financial performance indicating that that merged/acquired insurance firms had improved financial performance. The study thus recommended that for insurance firms seeking to improve on their financial performance, a merger/acquisition would be one of the options to consider. Keywords: Mergers, Acquisition, Marketing networks, Product merger, Asset merger, Price merger, Financial performance.