FirstRand acquires 75% stake in Merchant Bank Ghana
FIRSTRAND could atone for its failure to buy Nigeria’s Sterling Bank after shareholders of Merchant Bank Ghana (MBG) agreed to its offer to become a 75% owner for an investment of nearly R750m.
The deal provides FirstRand units — First National Bank and Rand Merchant Bank — with a platform to roll out their products and services in a country already enjoying one of the fastest growth rates in sub-Saharan Africa.
Nigeria, however, remains the first prize for South Africa’s big banks, who are investing in retail and investment bank franchises in the region where Standard Bank is the largest by assets.
FirstRand is believed to be considering making an acquisition in Nigeria after its aborted attempt to invest in Sterling Bank was scuttled by its owners, who were believed to have asked that the group pay $400m for a controlling stake.
FirstRand said on Wednesday shareholders of Merchant Bank had accepted its offer to pay R746.2m in exchange for a 75% stake in the franchise, which had 22 branches and was ranked among the top 10 banks in the country.
"FirstRand’s investment will comprise an acquisition of shares from existing shareholders of R592.2m, and a subscription for new shares for an equivalent value of R154m," the group said.
"The existing shareholders of MBG, which include Ghana’s Social Security and National Insurance Trust, will remain as minority shareholders, and continue to support the business as required," it said.
The deal, which was subject to remaining shareholder, board and regulatory approval, excluded certain non-performing loans on MBG’s balance sheet, which would be acquired by existing shareholders and continue collecting the outstanding balances.
FirstRand CEO Sizwe Nxasana said FirstRand was happy it had found an asset to purchase, and the investment represented "a long-standing banking franchise, which will provide an excellent platform for FNB and RMB to roll out products and services in Ghana."
By investing in Ghana, FirstRand becomes the second South African bank to have an operation in the country after Standard, which has a business in Ghana, while Absa is partnering with Barclays Capital in investment and corporate banking.
Johan Scholtz, head of research at Afrifocus, said on Wednesday the deal was small and not transformational, and showed the race to grow footprint in Africa among the big South African banks was intensifying.
"FirstRand have surplus capital and can easily afford the odd R700m investment. It is not a transformational deal but it shows their intention," Mr Scholtz said.
Faizal Moolla, banking analyst at Avior Research, said without further financial details, it was difficult to say whether FirstRand had overpaid for the Ghana bank.
Adrian Cloete, equity analyst at Cadiz Asset Management, said the acquisition was a bolt-on investment representing 0.5% of the FirstRand group’s market value.
"The transaction also ties in their aim to build integrated platforms with scale, distribution and deposit franchises that deliver sustainable long term (return on equity)," said Mr Cloete.
He said the deal made sense because Africa was a growth market and "it is therefore very compelling for FirstRand to be on the look-out for attractive acquisitions."