We have previously explored the process of selling businesses and mergers and acquisitions. From the
buyers’ perspective, it is crucial to identify what features to look for when buying a business. They include:
- Rapid growth
Businesses experiencing rapid growth need the necessary financial, human resources and technological
capital to facilitate their expansion. Owners of such businesses will consider well-structured proposals
from strategic and financial investors. In recent years, the Equity Group Holdings based in Kenya has
been active in the Democratic Republic of Congo acquiring Procredit Bank Congo in 2015 and merging
with Banque Commerciale Du Congo in 2020. Equity Group project their Congo business to exceed the
size of the Kenya business in the next decade.
- Underutilised assets
Some of the factors that result in idle assets include changes in demand trends; shifts in the strategic
direction of a business; or obsolescence. These businesses will welcome offers for business lines
associated with their idle assets. In 2015, Centum acquired Rea Vipingo and delisted it from the Nairobi
Stock Exchange. Through the acquisition, Centum accessed land owned by Rea Vipingo to undertake real
estate development activities.
- Inefficient management
Demonstrating to owners of the target business that you can help them generate more value from the
business through effective management structures and personnel is bound to get their attention. This is
especially true for persistently underperforming businesses. In the past decade, private sugar millers
owned by the Kenyan government have been the subject of privatization discussions given their loss-
making status that has been partly attributed to poor management.
- Low historical shareholder returns
Mergers and acquisitions tend to be premised on envisaged synergies from combining two businesses.
Your end goal here is increasing the value accruing to shareholders of both businesses. Consequently, a
poorly performing business is likely to welcome acquisition by or a merger with a better performing
business. The takeover of the National Bank of Kenya by KCB Group Plc in 2019 was partly driven by
both banks sharing a common shareholder and the projected benefits of leveraging each of the banks’
strengths to create a single business.
- Market underpricing
The stock markets offer a convenient platform to identify companies trading at low market value to
book value multiples. In 2020, Delta International FZE acquired a majority stake in Nairobi Business
Ventures (NBV) listed on the Nairobi Securities Exchange (NSE). The low trading prices of NBV then
made the acquisition quite attractive to Delta. By undertaking the reverse takeover of NBV in 2020,
Delta also indirectly attained listing status on the NSE.
At Standard Investment Bank, we always look forward to advising you throughout the acquisition
process. Reach out to us at @advisory.sib.co.ke.