Whenever we hear the terms Mergers or Acquisitions, we always relate them to merging and acquiring of businesses to create competitive advantage, diversify business or save the smaller entity from collapsing.
Mergers happen when two entities with similar core businesses and sound financial health come together to form a joint organisation with the aim of expanding their capital, asset and customer base for competitive advantage purposes. In the recent past, this happened between two major banks, NIC and CBA, which birthed NCBA Bank. This has seen the bank grow both its core capital, asset and customer bases expanding its market share which has had a ripple effect on both the statement of financial performance and financial position.
Acquisitions on the other hand happen when a bigger entity buys/takes over(sometimes hostile) a smaller one to either take control over its operations or acquire its customers or control factors of production(raw materials) to become both the supplier and producer or venture into another business as a form of diversification. With reference to the banking sector, KCB acquired NBK which was a smaller entity compared to it in terms of core capital, loan book value, customer and asset bases, P&L as well as Balance Sheet. Acquirers always aim to bolster up the operations of the acquired entity by pumping in more capital into the business and restructure the operations in order to make it more profitable. Acquisitions can lead to creation of subsidiaries, branches or dissolutions depending on the jurisdiction or business model the Acquirer opts to operate in.
Solvency is the ability of an entity to meet its long-term debts and financial obligations. Solvency can be an important measure of financial soundness, since it’s one way of demonstrating an entity’s ability to manage its operations into the foreseeable future or as a going-concern. Mumias Sugar Company is a perfect example of a company which struggled financially and was put under receivership to help the resuscitate it through the help receiver managers.
Exit business or corporate world and enter the world of UDA and ODM politics and these business concepts become relatable in the way of running both the affairs of the country and political parties to ensure survival or going-concern. In the backdrop of agitation by the Kenyan Gen-Z & Millennials to enjoy their freedoms and rights to assemble, to demonstrate, to picket, and to present petitions to public authorities as enshrined in Constitution of Kenya, 2010 under Article 37, poor financial health(untenable fiscal policies), lack of proper governance and proliferation of public resources by the country’s C.E.O, President Ruto, were the major reasons cited by the young people who agitate for his resignation. A replica of what would happen in the corporate world if stakeholders have no faith in the management(Stewardship and Agency Theories applying respectively).
In accordance with the provisions of Political Parties Act, the President’s party, UDA, acquired smaller political parties and entered into post-election agreements with them immediately he won the 2022 elections so as to have full control of both the Lower and Upper Houses, this is akin to expanding both the capital and asset base of a company to ensure full control or a bigger market share due to the financial muscle that comes with it. To quell the dissatisfaction of the populace(stakeholders), Ruto opted to reach out to Raila to assist him in restructuring the Executive and make the country a going-concern but that only seemed to have solved the political side(management) of the public disquiet leaving the financial side(economy) totally unresolved. Is it a MERGER or an ACQUISITION? Going by the numbers in both the houses and political developments in their respective coalitions(KK & AZIMIO), it leans more towards a CONGLOMERATE rather than a merger or an acquisition when viewed from the lenses of regional balancing and their modus operandi as both the major political parties have maintained their party structures through successions. Just like in business, elements such as NEGOTIATION, SHAREHOLDERS’ WEALTH, GOODWILL, GOING-CONCERN & PRUDENTIAL CONCEPT must have played a huge role in striking the deal.
As the country and GoK Inc. progresses and tries to find a footing, will the the country become SOLVENT or INSOLVENT in the foreseeable future? Do we have trust and faith in the Captain as we sail through the stormy Sea or should we sign a BUMBERSHOOT POLICY or SHAKE our HANDS and resign to fate?
By Ambrose Milayi.
