A Mauritian fund manager Axis has acquired Kenyan stock broker ApexAfrica Capital for Sh470 million, making it the highest priced takeover of a market intermediary in East Africa.
Details of the transaction, which is expected to be completed in the coming weeks, have been made public by the Competition Authority of Kenya (CAK), which allowed it to progress on grounds that it is not subject to the regulator’s review.
Axis is taking over ApexAfrica through its local unit Mauritius Kenya Investment Holding.
“The authority … excludes the proposed acquisition of 100 per cent of the issued share capital of ApexAfrica by Mauritius Kenya Investment Holding,” CAK director-general Wang’ombe Kariuki said in a notice dated July 10, 2015.
Mr Kariuki said he decided not to interrogate the takeover because it was unlikely to affect competition.
The CAK’s decision was also informed by the fact that ApexAfrica earned Sh122 million in revenues in 2014 a level that is below the merger notification threshold.
The acquisition will see Mauritius’ Axis enter the Kenyan stockbrokerage market for the first time, betting on its solid base of individual and corporate clients in East Africa to build on ApexAfrica’s existing clientele.
Axis offers a wide range of financial services, including fund management, investment advisory, establishment of trusts and tax shelters in the Seychelles, Mauritius and Kenya.
Sources familiar with the deal told the Business Daily that Axis had hunted for a takeover candidate among several Nairobi-based stock brokers and settled on ApexAfrica mainly because of its strong base of local corporate and high-net-worth individual clients.
ApexAfrica’s long-serving CEO Kassim Bharadia has been behind the building of a network of wealthy clients, including entrepreneurs in Mombasa.
Like other brokers, the firm offers research and trading of bonds and stocks on the Nairobi Securities Exchange (NSE) for commissions capped at 2.1 per cent of the transaction value.
This commission structure has meant that brokers with higher trading values are better positioned to earn more, placing a premium on wealthy individuals and institutional clients that buy stocks worth millions of shillings in a typical transaction.
The acquisition of ApexAfrica — which was licensed in 1994 — is set to earn its founders substantial gains, being the priciest takeover of a stockbroker in Kenya.
The company’s founders will be venturing into the real estate business after ceding ownership to Axis, sources said.
Such large investment in a stock broker was last seen in 2008 when Renaissance Capital (Rencap) paid Sh250 million for a seat at the Nairobi bourse, which at the time was seen as an exclusive club with high barriers to entry.
The NSE last year revised its licence fees for stockbrokers down to a standard Sh25 million, ending the previous opaque and high-fee regime that saw investors acquire struggling or collapsed institutions just to get a seat at the bourse.
Axis’ takeover of ApexAfrica after the drop in the licence fees and easing of restrictions validates the view that it bought the broker for its ongoing business and clients.
The Mauritian firm’s offer to pay a premium for ApexAfrica has seen the deal dwarf previous takeovers of market intermediaries.
Recent acquisitions of stockbrokers have been valued at less than Sh250 million, including Equity Bank’s purchase of an undisclosed majority stake in the collapsed Francis Thuo & Partners last year for an estimated Sh150 million.
The transaction was done under the bank’s subsidiary Equity Investment Bank (EIB). NIC Bank also acquired a 57 per cent stake in Solid Investment Securities in 2007 and raised its equity in the broker to 100 per cent after completing the buyout of minority interests last year.
UK financial services group Old Mutual in 2010 acquired a 70 per cent stake in Reliable Securities whose main shareholder was Jos Konzolo.
The increased acquisitions are seen as being driven by deep-pocketed institutions out to get a piece of Kenya’s fast-growing capital market, whose profile continues to rise globally, drawing in foreign investors who dominate trading at the Nairobi bourse.
Banks, in particular, see ownership of stockbrokerages as part of their diversification and value-adding strategies as the institutions race to offer their customers comprehensive financial services.
Equities turnover at the NSE peaked at Sh215.7 billion last year, rising 38.7 per cent from Sh155.7 billion in 2013 and nearly doubling the Sh110.3 billion recorded in 2010. Bonds turnover also rose 12 per cent to Sh506 billion last year compared to Sh452.4 billion in 2014.
The rising marketable securities trades by local and foreign investors are seen as the major driver of increased interest in the local stock brokerage business, sparking fierce competition.
Brokers with high-net-worth clients have emerged as the biggest winners, earning higher commissions from the large transactions.
Equity Investment Bank’s (EIB) ascent to second place in the first half equity trades ranking underlines the impact of handling big clients, especially foreign institutions that have the highest trading frequencies.
EIB’s equity trades in the period stood at Sh33.6 billion, placing it second after Kestrel Capital that handled shares worth Sh35.5 billion.
EIB was largely boosted by private equity firm Helios Investment Partners, which sold shares of the broker’s parent Equity Group worth over Sh7 billion in June alone.
The broker, which was previously ranked fifth, overtook SBG Securities, Standard Investment Bank and Rencap, which had held the second position last year.