Combine To Create Size or Growing From Small To Big?

Many companies seek to acquire or merge to grow. Size has always been the underlying rationale for mergers and acquisitions (“M&A”) as the creation of larger entities will purportedly increase the capacity of the entities hence allowing them to take advantage of economies of scale and scope. Another reason for M&A is to create a “portfolio of core competences” by combining and exploiting the core competences of the two entities to create synergy and to enhance the competitive edge for the enlarged entity hence enabling it to compete/outplay its competitors. These benefits would eventually translate to value creation to the shareholders. This paper examines the validity of the above-mentioned propositions. The study is premised on the M&A of the banking sector in Malaysia. In this paper, an introduction of a conceptual framework to assess the extent of value creation in the post-acquisition performances of several banks that have completed merger exercises. The results indicate that the post-acquisition performances of the merged banks have not improved, as benefits associated with being big do not appear to materialise. Further, the creation of new core competences is not evident and in some cases, the old core competences are lost in the aftermath of the M&A. Overall, the findings do not appear to indicate that the enlarged entities ultimately create value for their shareholders