German PE firm to offload 38.74pc stake in Resolution

A German private equity (PE) firm is seeking to dispose of its 38.74 per cent stake in Resolution Insurance in a deal estimated at well over Sh400 million.

Frankfurt-based African Development Corporation (ADC) says in its latest annual report that it will sell its Resolution stake once it receives a good offer from interested parties.

This is part of its plan of exiting all its non-banking ventures in Africa to focus exclusively on the banking industry, with the firm set to acquire a local lender in the strategy shift.

ADC’s divestiture in Resolution will see the insurer’s founder shareholders —including the CEO Peter Nduati —acquire new partners in the company that is expanding in the East African region.

“ADC further refines its strategy to focus entirely on banking sector activities and to hold existing private equity investments only until market conditions are conducive for an exit,” the PE firm said in a statement.

The multinational is already processing the sale of its 88.54 per cent stake in Rwanda’s national payments switch RSwitch and its 49 per cent equity in South Africa’s payment platform iVeri.

ADC made its first investment in Resolution in December 2010 when it paid €2.5 million (Sh299 million) for shares equivalent to a 25.1 per cent stake.

The PE firm acquired a further 13.64 per cent stake in the insurer in October 2012 when it converted its debentures (unsecured loans) into equity—pushing its ownership to 38.74 per cent.

The twin transactions led to the dilution of Resolution’s founding shareholders including Mr Nduati, former Equity Bank executive John Mwangi and Heartwood, an institutional investor.

Mr Nduati had told Business Daily in an earlier interview that his stake had dropped from 52 per cent to 20 per cent, a drop that brought him in compliance with insurance laws.

Chief executives are barred from owning more than a quarter of insurance firms they are managing. ADC said its 38.74 per cent equity in Resolution now has a fair value of €3.8 million (Sh454.7 million), valuing the insurer at about Sh1.1 billion.

ADC says it will in future only invest in Africa’s banking sector, a strategy that has prompted its exit from non-banking institutions despite their growth potential.

READ: German PE firm mulls takeover of Kenyan bank

Resolution converted from a medical insurance provider into a general insurer last year. It has also ventured into Uganda, Tanzania, and South Sudan where it is offering general insurance covers directly and through partners in those markets.

The insurer made a net profit of Sh48.7 million in 2012, reversing a net loss of Sh128.7 million the year before. This came as revenues rose 31.2 per cent to Sh2 billion from Sh1.5 billion over the same period.

The company mainly targets middle class individuals and small and medium-sized firms with medical insurance plans, citing the relatively higher profit margins from such clients compared to large firms.

ADC is selling its stake in Resolution at a time when the PE firm is itself being acquired by Atlas Mara, a group of investors fronted by former CEO of Barclays Plc Bob Diamond.

Mr Diamond, who was ousted from Barclays last year after a scandal involving manipulation of interest rates, helped establish Atlas Mara that raised $325 million (Sh27.9 billion) last year.

The London-listed firm has proposed to spend $265 million (Sh22.7 billion) to acquire ADC in a cash-and-stock transaction and thereafter pump more capital to expand its banking interests in Kenya and other African markets.

Atlas Mara is backed by Ugandan billionaire Ashish Thakkar, 30, whose Mara Group operates in 19 African countries.