View of Financial Performance Analysis of Telecommunications Companies in Southeast Asia Before and After Mergers and Acquisitions 2018-2021

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Financial Performance Analysis of Telecommunications Companies in Southeast Asia Before and After Mergers

and Acquisitions 2018-2021

Devian Bella Aventa, Agus Sukoco

Department of Management, Narotama University Jl. Arief Rahman Hakim, No. 51, 60117, Surabaya, Indonesia

aventa.devi@gmail.com, Agus.sukoco@narotama.ac.id

Abstract

This research is based on the phenomenon of many companies conducting mergers and acquisitions in the midst of the Covid-19 pandemic that has occurred since 2020. This is done with the hope of increasing the company's financial performance. Researchers are interested in examining the financial condition of telecommunications companies in Southeast Asia by analyzing financial performance before and after mergers and acquisitions. The method of data collection was carried out using purposive sampling technique. The sample comes from the financial statements of each company before and after mergers and acquisitions. The financial report is taken from the official website of the telecommunications company and is a Go Public company. The research method used is a quantitative approach by performing statistical T-tests and comparative techniques on several financial ratios. These ratios are Current Ratio, Quick Ratio, Debt to Equity Ratio, Return On Assets, Return On Equity, and Net Profit Margin. The results obtained after performing a statistical T test on several of these ratios found there is no significant change of all financial ratios used in this study.

Keywords:

Financial Ratios, Mergers and Acquisition, Telecommunication Company.

1. Introduction

The phenomenon of the financial performance of telecommunications companies during the Covid-19 pandemic that has occurred since 2020 has fluctuated and decreased in performance so that several companies merged and others were acquired by larger companies so that an increase in the company's financial performance was expected. Based on the observations, there are 7 telecommunications companies in Southeast Asia that carry out mergers and acquisitions. According to Brigham & Houston (2019), several reasons for the merger are to improve company performance which include: Synergy, Tax considerations, Purchase of assets below replacement cost, Diversification, Manager's personal incentives, Value split (Brigham & Houston, 2019).

Merger is a combination of two or more that form a single company. Acquisition is the process by which shares or company assets become the property of the buyer. The transaction can be in the form of purchase of shares or purchase of assets (Brigham & Houston, 2019). According to Akbar & Fahmi (2020) performance is an analysis carried out to see how far a company has implemented using financial implementation rules properly and correctly. Meanwhile, financial statement analysis is an accounting procedure that evaluates financial statements that have been prepared based on relevant data to determine the actual financial condition of the company. The condition in question is knowing the amount of assets (wealth), liabilities (debt), and capital (equity) in the balance sheet owned (Kasmir, 2021). Financial ratio (financial ratio) is the rewriting of accounting data into the form of comparisons in order to identify the strengths and weaknesses of a company (Keown et al., 2017). The telecommunications companies that carry out mergers and acquisitions in Southeast Asia are Indosat Ooredoo - H3i (Indosat Ooredoo Hutchison (Ioh); Axiata Group Berhad; Singapore Telecommunication.

This study will compare the financial performance of several ratios, namely Current ratio in this study is the calculation of asset ratios current liabilities (which will be converted into cash in one year) with current liabilities (which require cash payments within one year).Thus, comparing the level of available assets to meet short-term obligations (Alexander, 2018). Quick Ratio in this study According to Kasmir (2021) the quick ratio (Quick Ratio) or very current ratio (acid test ratio) is a ratio that shows the company's ability to fulfill or pay obligations or current debt (short-term debt) with current assets without taking into account the value of inventory (inventory).

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Debt to Equity Ratio The ratio used to assess debt and e quality. This ratio is sought by comparing all debt, including current debt with all equity. This ratio is useful for knowing the amount of funds provided by creditors with company owners. For creditors, the greater the ratio, the more unprofitable it will be because the greater the risk borne for failures that may occur in the company. Return On Assets is the return on assets determining the amount of net income generated from the company's assets by linking net income to total assets (Keown et al., 2017). (Kasmir, 2021) ROE is a ratio to measure net profit after tax with own capital. The higher this ratio, the better for the company, and vice versa. Net profit margin is measured by the company's net income as a percentage of sales (Keown et al., 2017).

2. Literature Review

Return On Equity shows that there is a significant difference between before and after mergers and acquisitions (Gustina, 2017). CR, ROA, DER showed significant changes. The ratios of CR, ROA, DER did not show significant changes (Dewi & Suryantini, 2018). Only the CR ratio showed a significant change (Firdaus &

Dara, 2020). The ratio of CR, ROA, ROE, and NPM showed significant changes (Suprihatin, 2022). The CR, NPM, ROE ratios did not show significant changes (Taleb, 2021) The CR, DER, NPM ratios did not show significant changes (Hilmi hatta & Handini, 2021) The CR, DER, ROA, ROE, NPM ratios did not show significant changes. There is no significant change in the ROE and ROA ratios (Patel, 2018)The CR, QR, and DER ratios have no significant changes(Ansari & Mustafa, 2020).

Merger is a combination of two or more companies that form a single company (Brigham & Houston, 2019). An acquisition is a situation where one company (generally a larger company or acquiring firm) decides to buy another company, negotiates a price with the target company's management, and then acquires the target company (Brigham & Houston, 2019). The analysis of financial statements is that the financial statements are prepared based on relevant data, and the correct accounting and valuation procedures are carried out, the actual financial condition of the company will be seen (Kasmir, 2021). Financial ratios are the rewriting of accounting data into comparative form in order to identify the strengths and weaknesses of a company (Keown et al., 2017).

Current Ratio is the calculation of the ratio of current assets (which will be converted into cash within one year) to current liabilities (which require cash payment within one year). Thus, comparing the level of assets available to meet short-term liabilities (Alexander, 2018). Quick Ratio or very current ratio (Acid Test Ratio) is a ratio that shows the company's ability to meet or pay obligations or current debt (short-term debt) with current assets without taking into account the value of inventory. Debt to equity ratio is a ratio used to measure debt and equity. This ratio is found by comparing all debt, including current debt with all equity. This ratio is useful for knowing the amount of funds provided by creditors with company owners. For creditors, the higher the ratio, the more unfavorable because the more risk is borne for failures that may occur in the company (Kasmir, 2021). Net Profit Margin is measured by the company's net income as a percentage of sales. Return On Assets is a ratio to determine the amount of net income generated from the company's assets by linking net income to total assets (Keown et al., 2017). Return On Equity is a ratio to measure net profit after tax with own capital. The higher this ratio, the better for the company, and conversely (Kasmir, 2021)

2.1. Conceptual Framework

Before mergers and acquisitions

Difference Test Palred t test

After mergers and acquisitions

Financial Ratios : 1. Current Ratio (CR) 2. Quick Ratio (QR)

3. Debt to Equity Ratio (DER) 4. Return On Assets (ROA) 5. Return On Equity (ROE) 6. Net Profit Margin (NPM)

Financial Ratios : 1. Current Ratio (CR) 2. Quick Ratio (QR)

3. Debt to Equity Ratio (DER) 4. Return On Assets (ROA) 5. Return On Equity (ROE) 6. Net Profit Margin (NPM)

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3. Method

3.1 Research Object

The object of this research is the financial statements of telecommunications companies in Southeast Asia before and after mergers and acquisitions in the 2018-2021.

3.2 Types, Sources and Techniques of Data Collection 3.2.1. Types of Data

There are two types of research data, namely qualitative and quantitative. In this study using secondary data data. According to Bungin (In Ibrahim, 2018) additional or secondary data sources are all forms of documents, both in written form and photographs. Or the second data source after the primary data source.

3.2.2. Source of Data

The source of data in this study is the company's financial statements obtained from the company's official website.

3.2.3. Data Collection Techniques

In this study using purposive sampling data collection techniques, namely taking samples by making certain criteria so that the data fit the needs of the researcher. This study will use a comparative approach by comparing financial performance before and after mergers and acquisitions.

The following data criteria applied in this study are telecommunications companies in Southeast Asia that carry out mergers and acquisitions for the period 2018-2021 and issue financial reports that comply with international standards.

4. Reseacrh and Discussion

The following table shows the average value of the financial performance of the companies that were sampled before and after mergers and acquisitions, where to see the performance of each company the researchers used six ratios, namely, current ratio, quick ratio, debt to equity, return on assets, return on equity and net profit margin.

Table 1. Average Of Financial Ratio

No. Company Name Code Ratio Average Before M&A Average After M&A

1 Indosat Isat

Cr 0.469 0.412

Qr 0.467 0.411

Der 3.481 4.507

Roa -0.007 0.049

Roe -0.026 0.309

Npm -0.014 0.098

2 Axiata Berhad Axiata

Cr 0.530 0.361

Qr 0.521 0.352

Der 1.928 2.100

Roa -0.051 0.013

Roe -0.066 0.039

Npm -0.067 0.038

3 Singapore Telecommunication Stel

Cr 1.263 0.861

Qr 1.247 0.849

Der 0.154 0.223

Roa 0.173 0.036

Roe 0.200 0.079

Npm 0.246 0.050

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4.1 Descriptive Statistic

Table 2. Test Of Normality

Kolmogorov-Smirnov^a Shapiro-Wilk

Statistic Df Sig. Statistic Df Sig.

Cr_ Before .361 3 . .807 3 .132

Qr_ Before .363 3 . .802 3 .118

Der_ Before .184 3 . .999 3 .927

Roa_ Before .315 3 . .891 3 .356

Roe_ Before .334 3 . .860 3 .267

Npm_ Before .326 3 . .873 3 .303

Cr_ After .352 3 . .826 3 .177

Qr_ After .346 3 . .838 3 .208

Der_ After .199 3 . .995 3 .864

Roa_ After .239 3 . .975 3 .696

Roe_ After .335 3 . .858 3 .263

Npm_ After .314 3 . .893 3 .363

a. Lilliefors Significance Correction

Based on the table, there are 2 parts, namely Kolmogorov-Smirnov and Shapiro-Wilk. Because the data taken is less than 50, the normality test looks at the Shapiro-Wilk data. Based on the Shapiro Wilk test, it can be seen that all ratios used as measurements of the financial performance of telecommunications sector companies both before and after the acquisition have a probability value greater than a significance level of 0.05 (Asymp.sig (2-tailed) > 0.05). This means that all data are normally distributed and the scores in the sample can be ascribed to the study population. Because the data is normally distributed, the hypothesis testing of financial performance can use a parametric test, namely the Paired-Sample T-Test.

4.2 Paired t Test 4.2.1. CR Paired t Test

Table 3. CR paired t test Paired Samples Statistics

Mean N Std. Deviation Std. Error Mean

Pair 1 CR_ Before .75400 3 .441861 .255108

CR_ After .54467 3 .275137 .158850

Table 4. CR Paired T Test Paired Differences

t df Sig. (2- tailed) Mean Std.

Deviation

Std. Error Mean

95% Confidence Interval of the

Difference Lower Upper Pair 1 CR_ Before –

CR_ After

.20933

3 .176001 .101614 -.227877 .646544 2.060 2 .176 The output of SPSS Paired Sample T Test data shows that the average CR of companies in the telecommunications sector before mergers and acquisitions is 0.754, which is higher than the CR of companies after mergers and acquisitions, which is 0.54467. This means that before mergers and acquisitions the company in fulfilling its short-term debts is better or more liquid than after the merger and acquisition. Based on the results of the paired T test, the 2-tailed sig value is 0.176, where the 2-tailed sig value is greater than 0.05, then H0 accepted and H1 is rejected, this indicates that there is no significant difference between the average CR companies in the telecommunications sector before and after mergers and acquisitions. This indicates that when viewed from the average CR ratio, there is an insignificant decrease in the financial performance of the acquiring company in the telecommunications sector after the acquisition.

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4.2.2. QR Paired t Test

Table 5. QR paired t test Paired Samples Statistics

Pair 1 QR_ Before .74500 3 .435582 .251484

QR_ After .53733 3 .271519 .156761

Table 6. QR Paired T Test Paired Differences

Deviation

Std. Error Mean

Difference Lower Upper Pair 1 QR_ Before –

QR_ After .207667 .174248 .100602 -.225189 .640522 2.064 2 .175 The output of SPSS Paired Sample T Test data shows that the average QR of companies in the telecommunications sector before mergers and acquisitions is 0.745, higher than the QR of companies after mergers and acquisitions, which is 0.53733. Based on the results of the paired T test, the 2-tailed sig value is 0.175, where the 2-tailed sig value is greater than 0.05, then H0 accepted and H1 is rejected, this indicates that there is no significant difference between the average QR of telecommunications sector companies before and after mergers and acquisitions. This indicates that when viewed from the average QR ratio, there is an insignificant decrease in the financial performance of the telecommunication sector acquiring company after the acquisition.

4.2.3. DER Paired t Test

Table 7. DER paired t test Paired Samples Statistics

Pair 1 DER_ Before 1.85433 3 1.664723 .961128

DER_ After 2.27667 3 2.147457 1.239835

Table 8. DER Paired Test Paired Samples Test Paired Differences

Deviation

Std. Error Mean

Difference Lower Upper Pair 1 DER_ Before -

DER_ After -

.422333 .525321 .303294 -1.727303 .882637 -1.392 2 .298 The output of SPSS Paired Sample T Test data shows that the average DER of companies in the telecommunications sector before mergers and acquisitions is 1.85433, lower than the DER of companies after mergers and acquisitions, which is 2.27667. Based on the results of the paired T test, the 2-tailed sig value is 0.298, where the 2-tailed sig value is greater than 0.05, then H0 isand H1accepted rejected. This shows that there is no significant difference between the average DER of the telecommunications sector companies before and after the merger and acquisition. These results indicate that when viewed from the average DER ratio, there is an insignificant increase in the financial performance of the acquiring company in the telecommunications sector after the acquisition.

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4.2.4. ROA Paired t Test

Table 9. ROA Paired t Test Paired Samples Statistics

Pair 1 ROA_ Before .03833 3 .118682 .068521

ROA_ After .03267 3 .018230 .010525

Table 10. ROA Paired T Test Paired Differences

Deviation

Std. Error Mean

Difference Lower Upper Pair 1 ROA_ Before -

ROA_ After .005667 .113808 .065707 -.277049 .288382 .086 2 .939 The output of SPSS Paired Sample T Test data shows that the average ROA of companies in the telecommunications sector before mergers and acquisitions is 0.03833, which is higher than the ROA of companies after mergers and acquisitions, which is 0.03267. Based on the results of the paired T test, the 2- tailed sig value is 0.939, where the 2-tailed sig value is greater than 0.05, then H0 accepted and H1 rejected.

This shows that there is no significant difference between the average ROA of telecommunications sector companies before and after mergers and acquisitions. These results indicate that when viewed from the average ROA ratio, there is no significant decline in the financial performance of companies in the telecommunications sector after the acquisition.

4.2.5. ROE Paired t Test

Table 11. ROE Paired t Test Paired Samples Statistics

Pair 1 ROE_ Before .03600 3 .143429 .082809

ROE_ After .14233 3 .145717 .084130

Table 12. ROE Paired T Test Paired Samples Test Paired Differences

Deviation

Std. Error Mean

Difference Lower Upper Pair 1 ROE_ Before -

ROE_ After -

.106333 .228003 .131638 -.672724 .460057 -.808 2 .504 The output of SPSS Paired Sample T Test data shows that the average ROE of companies in the telecommunications sector before mergers and acquisitions is 0.036, which is lower than the ROE of companies after mergers and acquisitions, which is 0.14233. Based on the results of the paired T test, the 2-tailed sig value is 0.504, where the 2-tailed sig value is greater than 0.05, then H0 isand H1accepted rejected. This shows that there is no significant difference between the average ROE of companies in the telecommunications sector before and after the merger and acquisition. These results indicate that when viewed from the average ROE ratio, there is an insignificant increase in the financial performance of the acquiring company in the telecommunications sector after the acquisition.

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4.2.6. NPM Paired t Test

Table 13. NPM Paired t Test Paired Samples Statistics

Pair 1 NPM_ Before .05500 3 .167520 .096718

NPM_ After .06200 3 .031749 .018330

Table 14. NPM Paired T Test Paired Samples Test Paired Differences

Deviation

Std. Error Mean

Difference Lower Upper Pair 1 NPM_ Before -

NPM_ After -

.007000 .175838 .101520 -.443806 .429806 -.069 2 .951 The output of SPSS Paired Sample T Test data shows that the average NPM of companies in the telecommunications sector before mergers and acquisitions is 0.05500, lower than the NPM of companies after mergers and acquisitions, which is 0.06200. Based on the results of the paired T test, the 2-tailed sig value is 0.951, where the 2-tailed sig value is greater than 0.05, then H0 accepted and H1 rejected. This shows that there is no significant difference between the average NPM of telecommunication sector companies before and after the merger and acquisition. These results indicate that when viewed from the average NPM ratio, there is an insignificant increase in the financial performance of the acquiring company in the telecommunications sector after the acquisition.

5. Conclusion

1. Current Ratio did not change significantly before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

2. Quick Ratio did not change significantly before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

3. Debt to Equity Ratio did not change significantly changes before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

4. Return On Assets did not change significantly changes before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

5. Return On Equity did not change significantly changes before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

6. Net Profit Margin did not change significantly changes before and after mergers and acquisitions of telecommunication companies in Southeast Asia that Go Public.

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