Middle East, Africa banks retain M&A allure

LONDON. — The Middle East and Africa region has enjoyed a steady increase in merger and acquisition (M&A) activity among banks and investment banks in recent years. This trend has seen total deal activity climb from just over $1bn in 2013 to about $3,6billion by the end of 2015, according to data from industry analyst Mergermarket.Encouragingly, this growth has been driven by an increasingly diverse range of participants, including big spending banks in the Gulf Co-operation Council (GCC) and a number of lenders in markets such as Kenya and Morocco, which are looking to spread their wings across the African continent.

It is notable that in 2013, five of the six largest deals involved acquisitions by banks from the GCC. Buoyed by strong oil prices and booming domestic economies, these lenders aggressively pursued opportunities both domestically, as well as in larger regional markets. The Commercial Bank of Qatar’s $473 million acquisition of a 75 percent stake in Turkey’s Alternatifbank formed part of a wider trend of Middle Eastern lenders looking to gain exposure to the country’s promising banking sector.

In the same year, the United Arab Emirates’ FGB completed the acquisition of Dubai First, a consumer financial services business, for $164 million. According to statements from FGB, the deal represented an opportunity for the bank to provide additional value to its customer base by leveraging Dubai First’s specialisation in liability and credit card products. Meanwhile, Bahrain’s Al Salam Bank merged with BMI Bank, an affiliate of Oman’s Bank Muscat, in a $156 million deal that formed part of a wider drive to establish larger and more competitive banks in the country.

Outside of the GCC region, Angola’s Banco BIC, the country’s fourth largest lender by total assets, completed two acquisitions of subsidiary units of Banco Portuguese de Negocios (BPN) in 2013. This followed the African lender’s acquisition of the BPN parent entity from the Portuguese government for €40 million in 2012, a deal that did not include the subsidiaries.

As such, Banco BIC went on to make two further acquisitions of BPN units in Cape Verde and Brazil for $39 million and $17 million, respectively. These transactions reflect the Angolan bank’s stated plans for aggressive geographical expansion across the Southern African Development Community and beyond.

The deal data for 2014 is notable for the fact that about $1,07 billion worth of transactions were executed by Qatar National Bank (QNB) and South Africa’s Nedbank for stakes in the pan-African banking group Ecobank Transnational Incorporated (ETI). For QNB, the move was a significant step forward in its ambitions of becoming the leading bank in the Middle East and Africa by 2017. The Qatari lender executed two transactions in September 2015, valued at $283million and $220 million, to secure a 23,5 percent stake in ETI.

Just one month later, Nedbank, South Africa’s fourth largest lender by total assets, took a 20 percent interest in ETI for $493 million. The deal is at the heart of the bank’s plans to expand beyond South Africa and secure access to faster growing markets across the continent. According to estimates reported in a number of local and international news sources, the transaction diluted QNB’s shareholding in ETI to between 17 percent and 19 percent.

Other transactions in Africa in the year included a number of sell-offs by the Asset Management Corporation of Nigeria (Amcon), the country’s bad bank set up following the 2009 banking crisis, to stabilise the banking sector. These deals include Amcon’s local sales of Enterprise Bank to Heritage Bank for $350 million, and Mainstreet Bank to Skye Bank for $124 million. In addition, Atlas Mara, the London-based investment vehicle run by former Barclays group chief executive Bob Diamond, purchased a 20,9 percent stake in the Union Bank of Nigeria from Amcon for $270 million.

Of the 10 largest Middle East and African M&A deals in 2015, nine involved the acquisition of banking targets in Africa. Though deal volumes were relatively small, the focus on the continent’s sub-Saharan market by both African and non-African acquirers was the stand-out feature of the year.

Here, Atlas Mara announced the $76 million acquisition of Zambia’s Finance Bank. With Finance Bank boasting an existing asset base of $286 million, 63 branch locations and 800 employees, Atlas Mara has cited the potential for a tie-up with its existing Zambian holdings to create the country’s largest bank by branch network and fifth largest by assets.

Meanwhile, Norway’s investment fund for developing countries, known as Norfund, in partnership with NorFinance, an investment company created by Norfund and private investors, purchased a 12,22 percent stake in Kenya’s Equity Group Holdings for about $257 million from private equity group Helios Investments.

The deal is in keeping with NorFinance’s founding strategy focused on investments in African financial institutions.

In the same year, Equity Group Holdings itself secured a stake in ProCredit, the seventh largest bank by assets in the Democratic Republic of the Congo.

The deal, which was valued at $60 million, gives Equity Group a strong position in Africa’s fourth most populous country. ProCredit has assets of about $200m along with a customer base of close to 170 000. Equity Group has stated that it will use ProCredit to aggressively develop the country’s underserved retail segment.

In west Africa, Moroccan banks maintained their recent expansion drive in the hunt for higher returns across francophone markets.

Morocco’s largest lender by total assets, Attijariwafa, acquired a 39 percent stake in Société Ivoirienne de Banque at a value of $56 million, while the Banque Centrale Populaire secured a 53 percent stake in BIA Niger for $25 million.

The growth of Moroccan banks across Africa partly reflects the country’s push to become a major financial hub for the north-west of the continent. But it also mirrors the strategy of other Moroccan corporates, particularly in the telecommunications sector, which have adopted similar non-organic growth strategies across much of west Africa.

The biggest deal of 2015 occurred outside Africa. Qatar National Bank’s announcement of the purchase of a 99,8 percent stake in Finansbank of Turkey, at a price of $2,9 billion, single-handedly drove up the total deal volume of the year to ensure that 2015 easily outpaced the previous two years put together.

The deal emerged as the Turkish lender’s parent entity, the National Bank of Greece, was required to make the sale as a condition of the various bail-outs it had received.

According to statements from QNB, the acquisition of Finansbank is a major step forward in its ambitions of becoming a leading global lender by 2030. With 647 branches, 5,3 million customers and about $19,5 billion worth of loans, Finansbank represents a sizeable addition to QNB’s global footprint.

The rapid growth in trade between Turkey and the Arab world over the past 10 years was cited as an additional incentive for the deal. QNB’s move into Turkey therefore represents another deal in which the Qatari lender has played a significant role in bumping up the overall figures for M&A activity across the Middle East and Africa.

Between 2013 and 2015, the total figure for the bank’s acquisitions in these regions reached about $3.5billion. — The Banker.

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