Staying Afloat: Embracing M&A in Challenging Economic Times

Staying Afloat: Embracing M&A in Challenging Economic Times



Mergers and Acquisitions (M&A) are used worldwide for either of two purposes, business expansion or survival. Statistics show that M&A transactions have been on the increase in recent years. A total of 57,948 M&A deals––the highest number in 38 years––were recorded globally.[1] In a similar fashion, 50,000 deals were recorded in 2022,[2] and as of April 2023, a total of 13,999 deals were already recorded globally.[3]


While the global business landscape is stabilising post-pandemic, the Nigerian business environment is becoming tougher and more treacherous. Inflation in Nigeria has grown from 16.95% in 2021 to 27.33% as of November 2023.[4] The exchange rate differences between the Naira and the Dollar have increased by over 116%; from NGN381 – USD1 in 2021 to NGN1400.76– USD1 in January 2024.[5] Hikes in diesel and petrol prices in the same period also increased the cost of the operations (“OPEX”) on power.[6] Overall, the cost of doing business in Nigeria is at an all-time high and business failure is very rampant. Business Day reported that close to 400 established businesses closed in Nigeria between 2018 and 2021. [7]


From the foregoing, it is clear that these are difficult times to do business in Nigeria and in this article, we will explain why Nigerian businesses should consider more mergers and acquisitions to stay afloat.


The Role of M&A in Business Survival


Mergers and acquisitions are transactions that combine two companies in some form.[8] A merger is generally defined as fusing two companies into one surviving company, while an acquisition is the purchase of a majority stake in one company by another. However, in more practical terms, there are horizontal and vertical mergers, which could take different forms. Therefore, other factors such as business strategy and boardroom politics come into play in deciding if a transaction would be termed a merger or an acquisition. The bottom line is that M&A involves the coming together of two companies to unify their operations in one form or another.


Companies embark on M&A for either of two broad reasons: survival or business expansion.[9] In challenging business times like these, the primary goal of M&A is survival, for the following reasons:

  • Cost efficiency: depending on the nature of the transaction, M&A can be a tool in achieving a significant reduction of both Capital expenses (CAPEX) and operational expenses (‘OPEX’). The reduction in CAPEX and OPEX without a drop in productivity gives room for the company to be more profitable. This process also facilitates the identification and elimination of redundancies and similar nuances.


  • Talent and technology optimisation: Through M&A, a struggling company lacking talent and technology to pull through challenging times can strategically employ co-ownership to tap into the talent and technology resources of its parent company.


  • Economies of scale: Business expansion, especially in capitalist economies, is indirectly a survival strategy. M&A gives the combined entities operational efficiency and bulk purchasing power to utilise economies of scale. For example, the combined fixed cost of two companies that were previously competitors will likely be less or the same post-merger, while their combined revenue will increase as they can win more market share because of their improved market dominance. Similarly, combined entities can negotiate better prices with suppliers due to their increased purchasing volume.


Portfolio optimisation:  M&A serves as a strategic approach for divesting non-core or underperforming business lines, allowing companies to concentrate on their core competencies. Consider a scenario where a company operates three business lines with varying revenue performance. Through M&A, it can strategically divest the least performing business line to a specialised company that dominates the market in that sector. This process involves the acquisition of the second company by the first company and transferring the operation of the underperforming line to the acquired company. The first company can focus on its core business while earning dividend interests from the divested business line due to its stake in the second company. The second company also gets market expansion due to the consolidation of its original market share with that of the first company.


Strategic Considerations for Businesses Contemplating M&A


While M&A is a saving line for businesses, it can also become a death trap if not done right. M&A negotiations have cost implications (pre- and post-transaction). The process may trigger the regulator’s review and at completion, the brand identity may be affected. These are some of the reasons why using the M&A tool requires careful planning and execution. Some of the points to consider while contemplating M&A are:


  • Cost of merger: the cost of a merger encompasses various elements, including transaction costs, financing costs, and integration costs. Transaction costs refer to the direct expenses associated with the merger process, such as legal and financial advisory fees, as well as filing fees. Financing costs come into play if the merger involves leveraging. Integration costs involve expenditures like rebranding fees and the costs associated with operational changes post-merger. Notably, among these mentioned costs, transaction fees typically stand out as the most substantial expense.


While contemplating M&A, it is important to weigh the cost of merger and plan mitigation strategies. It is highly advisable to engage cross-disciplinary professional advisory firms that can provide both legal and professional advisory services for a combined fee.


  • Competition/anti-trust: Competition and antitrust regulations play a pivotal role in M&A. Antitrust regulations are designed to promote competition and prevent the formation of monopolies or the abuse of market dominance. When considering any M&A deal, assessing its impact on competition becomes a crucial factor for regulatory approval or obtaining a “no objection.” To navigate this challenge, engaging experienced M&A advisors is beneficial. They can provide valuable insights into crafting the optimal M&A strategy to ensure compliance with antitrust laws. This advice may include structuring the deal as a joint venture, a series of bolt-on acquisitions, or a comprehensive full-sweep M&A, depending on the specific circumstances.


  • Corporate health: assessing corporate health becomes crucial in the post-merger scenario, as the surviving entity inherits both the assets and liabilities of the acquired company. Therefore, a thorough understanding of the target company’s corporate health is essential. Corporate health encompasses various aspects such as the target’s financial position, material contracts, capital gearing, tax liabilities, and more. This critical information typically surfaces during the due diligence process.


  • Alignment of values: In high-trust sectors like finance, the alignment of values becomes a significant consideration during acquisitions. The business values of the target company hold particular importance, as the goodwill (or lack thereof) associated with the target may directly transfer to the surviving entity or acquirer post-acquisition. In such sectors, where trust plays a pivotal role, ensuring that the values of the acquiring and target entities align is crucial to preserving and potentially enhancing the reputation and trustworthiness of the consolidated business.



In today’s business landscape, the strategic use of M&A emerges as a lifebuoy for companies navigating the storm. The surge in global M&A activities in 2021, following the aftermath of the COVID-19 pandemic, underscores the intuitive understanding among astute businesses that, in challenging times, collaboration often trumps solitary efforts.


M&A offers a strategic playbook for survival, with its potential to unlock cost efficiencies, optimise talent and technology, leverage economies of scale, and strategically realign business portfolios. The benefits are not only financial but extend to the holistic strengthening of a company’s position in the market post-turbulence.


However, the decision to embark on an M&A journey is not one to be taken lightly. Careful consideration and strategic planning are paramount. The costs associated with mergers, from transaction expenses to integration costs, must be meticulously weighed against the anticipated benefits. Moreover, navigating the regulatory landscape, particularly in the realm of antitrust laws, demands expertise. M&A advisors play a pivotal role in structuring deals that align with regulatory frameworks, whether through joint ventures, bolt-on acquisitions, or full-sweep M&A strategies.


In conclusion, as businesses in Nigeria grapple with the formidable challenges of the contemporary business landscape, M&A stands not just as a strategy but as a lifeline. To stay afloat, companies must not only recognise the potential of M&A but also embark on this journey armed with strategic foresight, careful planning, and a commitment to aligning values for business survival.


[1] When you consider it closely, business expansion is also a survival strategy especially in capitalist economies.

[2] Accessed

[3] 28th November, 2023

[4] Accessed 28th November, 2023

[5] Accessed 28th November, 2023

[6] Accessed 28th November 2023

[7] Accessed 28th November 2023

[8] Accessed 28th November 2023

[9] Accessed 28th November 2023