Frankfurt-based private equity firm African Development Corporation (ADC) is seeking to acquire a Kenyan bank as part of its strategy to expand in the regional market.
ADC, which holds a 38.7 per cent stake in Nairobi-based Resolution Health East Africa, said in its latest annual report that it is seeking to enter the local banking industry, marking the first such major entry by a German firm.
The expansion is part of a wider strategy that will see the PE firm set up operations in Côte d’Ivoire, Cameroon and Angola.
The PE’s existing banking operations are Union Bank of Nigeria and BancABC in Zambia, Botswana, South Africa, Zimbabwe, Mozambique and Tanzania.
“ADC’s transformed structure and strategy will enable it to further develop and expand into a leading pan-African banking group,” the PE firm said.
ADC plans to use the Kenyan banking unit to later expand into Uganda as Tanzania is already taken care of by BanABC’s subsidiary.
It is not clear whether the firm will use BancABC to spearhead the Kenyan acquisition or whether it will create a new investment vehicle. Analysts see the acquisition plan as a sign of increased foreign investor interest in Kenya’s profitable banking sector.
“The local banking industry has significant growth opportunities,” said Robert Bunyi, an analyst at Mavuno Capital.
“The economy is growing fast and this boosts demand for loans and other financial services,” he said.
The latest bank acquisition in Kenya was completed last year when Fina Bank’s founder Dhanu Chandaria sold his 70 per cent stake in the mid-sized lender to Nigeria’s Guaranty Trust Bank for Sh8.6 billion.
Togo-based Ecobank acquired the East African Building Society in 2008 and Nigeria’s United Bank for Africa started its Kenyan operations from scratch in 2009.
An acquisition would help ADC avoid the difficulties of starting operations from scratch, which include the high cost of customer acquisition, raising deposits as well as regulatory burdens, including acquisition of a licence.
Kenya has 43 banks and nearly all of them are profitable. The industry is, however, dominated by the top five banks —KCB, Equity, Co-operative, Barclays and Standard Chartered — that account for more than half of all the profits and loan books.
ADC has received a takeover offer 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 has committed to inject $100 million (Sh8.6 billion) in BanABC’s after the acquisition.
Atlas Mara is backed by Ugandan billionaire Ashish Thakkar, 30, whose Mara Group operates in 19 African countries.
The firm though noted in an investor presentation that Kenyan banks are valued higher in majority acquisitions compared to most African countries, with local lenders priced at 3.25 times of book value.