Equity Bank turns to vertical strategy after collapse of Atlas Mara acquisition
Unquantifiable risk as a result of Covid-19 made the complex deal unworkable.
Equity Bank’s plans for regional expansion suffered a setback when its deal to acquire four subsidiaries of Atlas Mara collapsed in June.
It began talks to acquire Atlas Mara’s subsidiaries in Rwanda, Zambia, Mozambique and Tanzania in April 2018, but was unable to reach an agreement by January this year when the deal’s terms expired.
Although another verbal commitment was made, Equity formally announced that it was abandoning the deal in June.
Management took the decision to drop talks when the Covid-19 crisis hit, the banks says, and to shift its strategy to better preserve capital and liquidity.
In keeping with this, Equity also withdrew a KSh9.5 billion ($88 million) dividend pay-out to shareholders.
The Atlas Mara deal was complex from the outset, with escalating country risk adding to the difficulty in pricing the transaction, Equity’s chief executive James Mwangi tells Euromoney.
Zambia has been hit by a currency and debt crisis, while Mozambique has suffered from the downturn in commodity prices.
In addition, contentious political reforms in Tanzania have weakened investor enthusiasm for that country.
“We needed to be very prudent and do very detailed analysis to be able to price that risk,” Mwangi says.