CHAPTER ONE

1. Introduction

In the last five (5) years, Ghana’s financial sector has seen a lot of mergers and acquisitions
which has changed the ownership structure of banks in Ghana, especially Ghanaian banks from
local to foreign banks. The immense change of ownership structure of most of these banks, as
can be noticed, were motivated by the Bank of Ghana’s regulations concerning the change in
banks’ operating in Ghana’s minimum capital requirement. The first major increment in the
minimum capital requirement of banks came in the year 2008, where the Bank of Ghana set the
minimum capital of banks in Ghana at GH¢60 million and in 2013, In compliance with its
mandate under Act 930, the Bank of Ghana issued Public Notice No. BG/GOV/SEC/2017/19
(Public Notice) on 11 September 2017 thereby revising the minimum paid-up capital for existing
banks and new entrants. Banks are now required to hold a minimum paid-up capital of 400
million Ghana Cedis by 31 December 2018, up from the previous minimum paid-up capital of
120 million Ghana Cedis. The minimum paid-up capital for Specialised Deposit-taking
Institutions (SDIs) on the other hand is capped at 15 million Ghana Cedis for savings and loans
companies and finance houses. This figure was further increased to GH¢120 million. The reason
for this exercise by the Bank of Ghana was to protect depositor’s funds. After these two
increment, a lot of banks who could not meet the minimum capital requirement of Bank of
Ghana resorted to mergers and acquisitions in order to comply with the Bank of Ghana’s
regulations. Banks like Procredit Savings and Loans taking over by Fidelity Bank,
Intercontinental Bank and Trust Bank of Ghana taken over by Access Bank, First Atlantic
Merchant Bank merging with Energy Commercial Bank, and Omni Bank merging with Bank
Sahel Sahara (Noor and Robert. 2018).

Business transformations in many emerging economies has seen the rise of growth drivers that
includes the search for new markets, higher competition in local markets, and new venture
capitalists’ interest in developing markets. Improving such development and overcoming
competition, mergers and acquisitions have become a successful strategy that many companies in
recent years have built on, to safeguard fast penetration of new market places while reducing
costs and entry risks (Adjei-Benin, 2011). Corporate combinations – the merger of separate
entities into one firm or the acquisition of one firm by another entity – have become an
increasingly common reality of organizational life. These mergers and acquisitions are used by
firms to strengthen and increase shareholders value, boost their revenues while reducing the cost
of capital through larger economies of scale, higher market shares and more tax gains. It’s
however noted that, mergers and acquisitions (M&As) failure range from a pessimistic 80% to a
more optimistic, but still disappointing, 50% (Cartwright, 1994). Contrary, major observations
indicate that, mergers and acquisition portray a neutral effect on profitability and a positive
indicator on cost efficiency (Behr, 2008) rather than the norm of higher efficiency and higher
profitability.
Although the phenomenon is not new, its extent and the forms it takes appear somewhat unusual.
Financial globalization and increased competition have favored the rise of mergers and
acquisitions of large firms which is also influenced by technological changes. These mergers and
acquisitions are not confined to the industrial sector so alone, but rather of concern to overall
economy and in particular the banking sector (Berger et al. 2000). Moreover, deregulation and
acceleration of financial innovation process have contributed to the complexity of forms of
financing mergers and acquisitions and gave shareholders a key role in the implementation of
such operations. The general expectation of all mergers and acquisitions is the overall positive
impact they normally have on the target and the acquirer as one company. The performance of
the new company that emerges out of the merger or acquisition is expected to perform well and
to stand the test of competition in the industry. In most cases, this is not always the case. Some
companies which have gone through mergers or acquisitions tend out not performing up to
expectation and are later merged or acquired by a different acquirer in another merger or
acquisition agreement.
The study is motivated by the above mentioned problems to investigate into the mergers and
acquisitions that have occurred in the Ghanaian financial sector for the past five years to
evaluate:
 The financing methods used in the mergers and acquisitions of banks in Ghana;
 The valuation decisions adopted in the mergers and acquisitions transactions;
 The distribution policies after the acquisitions;
 The stance of the parties involved with the merger or acquisition and
 The synergy created after the merger or acquisition.
1.1 STATEMENT OF THE PROBLEM
Business organizations are recently seeing consolidation (merger and acquisitions) as an
alternative means of recapitalization. During the past five years, the banking industry has
undergone rapid transformations (Pilloff, 1998). Some studies have suggested that merging
banks perform better than the individual banks performed before the merger whereas other
studies have not found any meaningful improvement in financial performance as a result of a
merger. Other than indicators with legal requirements by the Bank of Ghana, merger
restructuring has not improved the financial performance of the majority of merger institutions as
indicated by the profitability and earnings ratios (Chesang, 2008). The fundamental forces
behind these unprecedented movements are as a result of changes in economic and regulatory
environments (Berger A.N. 1999). Mergers and acquisitions are presently being used by major
firms to strengthen and increase shareholders value, boost their revenues while reducing the cost
of capital through larger economies of scale, higher market share and more tax gains. It’s
however noted that, mergers and acquisitions (M&As) failure range from a pessimistic 80% to a
more optimistic, but still disappointing, 50% (Cartwright, 1994). Contrary, major observation
indicate that, mergers and acquisition portray a neutral effect on profitability and a positive
indicator on cost efficiency (Behr, 2008) rather than the norm of higher efficiency and higher
profitability.

1.2 Objective of the study

The study aimed to assess the impact of M&A activities on the performance of banks in Ghana.
Specifically, the study attempted to:
 To examine the impact of mergers and acquisition on employees’ satisfaction;
 To determine if mergers and acquisitions increased the bank’s profitability;
 Identify and assess the strategies and policies of Fidelity Bank after the M&A.
  Assess the qualitative impact of M&A activities such as accounting reports, market
valuations and key informant descriptions on the performance of Fidelity Bank after the
M&A.

1.3 Research Questions

 What is the main effect of merger on the performance of First Atlantic Bank?
 What is the impact of mergers and acquisitions on employees’ satisfaction?
 Do mergers and acquisitions in the banking sector increase bank profitability?
 What are the strategies and policies put in place by Fidelity Bank after the M&A?

1.4 Scope of study

The study limited its scope to two main banks which have been involved in mergers and
acquisitions in Ghana. That is, Fidelity Bank – Procredit Savings and Loans acquisition and
Energy Commercial Bank – First Atlantic Bank Merger. There have been several mergers and
acquisitions which have taken place in the Ghanaian financial sector during the last five years.
Prominent among them are the mergers and acquisitions between Ecobank and the Trust Bank,
and Energy Commercial Bank – First Atlantic Bank, International Commercial Bank and First
Bank of Nigeria (FNB).

1.5 Significance of the Study

 The significance of this study cannot be overemphasized. It could be used as reference
for further research into the trend in the banking industry.
 Models could be developed on banks response to changing trends in the banking industry
and evaluation of banks. The key performance policies and strategies could be brought to
light to the management of banks and particularly Fidelity Bank in order that necessary
steps could be taken to forestall any imminent issues relating to the subject to the bank.
 The practical challenges of M&A activities could also be highlighted.
  To all practitioners within the industry, the outcome of this research could facilitate better
understanding of non-financial or qualitative management of banks such as asset
utilization, market penetrating strategies, deposit mobilization, tasks management and
others which could be used to increase competitive advantage in value and performance
among others after M&A.

1.6 Limitations of the Study

The problems encountered during the research were due to time and financial constraints
especially in the preparation of questionnaires, gathering of data and other resources. In addition,
not all the questionnaires administered were retrieved. The study was delimited to Fidelity Bank,
Tesano branch, Accra because the cost involved in undertaking a fuller research covering the
topic was enormous and way beyond the researcher’s fiscal resources.

1.7 Organization of the Study

This study is divided into five chapters. Chapter one underlined the introduction of the study
which covered the background of the research, objectives and research questions of the study,
significance, scope and limitation of the study. Chapter Two dealt with the literature review
which enclosed discussions on the Merger and Acquisition activities and its impact on the
performance of organizations such as the banks and other related concepts were looked at.
Chapter Three covered the methodology and described the research design and strategy,
sampling technique, data collection and data analysis methods used in the study. Chapter Four
covered the analysis, discussion and representation of results. Chapter Five entailed the summary
of the major findings, the conclusions and recommendations for policy directions.