The Kenyan lender wants to expand and strengthen its presence in Democratic Republic of Congo by acquiring a stake in Commercial Bank of Congo (BCDC).
Equity Bank CEO, Dr. James Mwangi says the move will help the bank further penetrate the African market.
“By acquiring BCDC, Equity will be able to expand its footprint in Africa. Through the proposed transaction, EGH aims to provide access to competitive, tailored financial services to improve people’s lives and livelihoods whilst also delivering significant value to its stakeholders,” the Equity CEO said in a statement Monday.
The BCDC’s acquisition estimate by Standard Investment Bank (SIB) is based on BCDC’s book value at the end of 2018. The estimate is also based on the price Equity paid to settle the 2015 deal when acquiring ProCredit Bank, another DRC bank.
According to SIB senior associate research analyst Martin Kirimi, given that BCDC is much stronger than ProCredit at the time of its acquisition, the least amount of money Equity will part with is likely to be twice the net assets of the lender.
“We basically estimated the net assets as at 2018 and then used the two-times multiple (2x) that they bought ProCredit at. Mostly likely, BCDC will be higher than the 2x multiple and that is why we are projecting a minimum of $170m,” said Mr Kirimi.
Why Equity is really salivating over BCDC
BCDC, with 29 branches in DRC, had net assets of Sh7.5 billion ($75 million) at the end of 2017, as quoted in its annual report. This has been growing at an average of 10 per cent annually. BCDC is also the most profitable bank in the region with an asset base of about $700 million.
Equity’s subsidiary in DRC has experienced exponential growth, posting an average Return on Equity (RoE) of 15.2% in 2018, up from 5.7% in 2016. This has seen it overtake Uganda to become the most profitable regional subsidiary.
Equity's latest acquisition transaction will be settled via cash, unlike Pro Credit Bank acquisition that took place through a share swap. Upon the deal’s completion which remains the subject of both shareholder and regulatory approval, Equity Group will move to amalgamate the BCDC business operations with that of its already operational subsidiary in the country.