Mergers and acquisitions often have unforeseen consequences even as companies join forces to create formidable businesses.



<hr class="wp-block-separator"/>



In West Africa, there has been a recent flurry of activity
in the mergers and acquisitions (M&amp;A) market, particularly in Ghana and
Nigeria, in the financial, telecommunications, oil and gas and manufacturing
sectors. Although these M&amp;A transactions are of a higher transaction value
in Nigeria based on its position as Africa’s largest economy, M&amp;A activities
in Ghana have been on a steady increase over the past decade.



In what was seen as a broader move to consolidate the
banking system and protect customers from financial institutions who had failed
to meet the new capital requirements for banks in Ghana, the Bank of Ghana
withdrew the licenses of some five well-known banks. The proposed amalgamation
of the banks – Construction Bank, Beige Bank, Royal Bank, UniBank and Sovereign
Bank – resulted in the newly-formed Consolidated Bank Ghana, with the&nbsp; government of Ghana owning 100% shares of the
bank. 



The merger of the banks makes the newly-formed financial
institution one of the largest in the country with over 148 branches across
Ghana. 



For many customers who were fortunate enough to not lose
their life savings, Consolidated Bank Ghana represents a much-needed lifeline. 



However, the history of recent mergers does not make for good reading. The financial experts FORBES AFRICA spoke to are skeptical about how the amalgamation will play out.



READ MORE | <a href="https://www.forbesafrica.com/investment/2019/03/25/to-increase-productivity-corporate-africa-needs-to-look-for-problems/" target="_blank" rel="noreferrer noopener" aria-label="To Increase Productivity Corporate Africa Needs To Look For Problems (opens in a new tab)">To Increase Productivity Corporate Africa Needs To Look For Problems</a>



“Merging five struggling banks together with the hope of
making them stronger is an ill-advised move. A lot of businesses have lost
confidence in the brands and, to be honest, nobody will be beating down their
doors to be coming in for loans or opening accounts with the newly-formed
bank,” says Kaz Bello, an economist in Ghana. 



Where the new merger may seem positive on the claim of size
and economies of scale, in reality, there are those who feel it might be
negative due to weak asset quality and staff-related concerns. Furthermore, the
bank’s management focus could shift from tackling non-performing assets to
integration of the banks.



“The bank of Ghana took over the assets and also the
liabilities of these banks. These insolvent banks will need some more years to
start working properly as a bank, even though it is considered a bank by the
central bank,” says Franklin Cudjoe, the founding president of the IMANI Centre
for Policy and Education, a think-tank in Ghana. 



Consequently, there is also the issue of how costs would be
more effectively managed, if there were no reductions in jobs through this
amalgamation. 



“The government has made available about 450 million cedis ($86 million) as starting capital for the new bank. We understand that the takeover will present several challenges and we are committed to ensuring we maintain the integrity of the Ghanaian financial sector and ensure we maintain investor confidence as well,” says Daniel Addo, the CEO of Consolidated Bank Ghana.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">According to Cudjoe, Ghana is one of the “big three” countries in Africa that dominate the African M&amp;A landscape. </blockquote>



“In recent years, there has been a steady growth in the
banking and telecommunications industry including the AirtelTigo merger in 2017
effectively creating the second-largest telecommunications network provider in
the country. 



Bayport Financial Services and CFC Savings &amp; Loans also
merged in 2017. Also, that year, there was the takeover by Ghana Commercial
Bank when it acquired all the deposits, liabilities and assets of both UT Bank
and Capital Bank. 



M&amp;A is a term that refers to the consolidation of
companies or assets through various types of financial transactions. This has
become an important channel for investment in Africa both locally and globally
by improving access to market and competitiveness of companies, which is
invariably good for consumers. 



According to the African Development Bank (AfDB), M&amp;A
deals on the continent totaled $27 billion in 2011. In 2018, an analysis by
Baker Mackenzie, for Thomson Reuters which was featured on CNBC Africa,
estimated a decline of 44% in deal volume and 57% in aggregate value of M&amp;A
transactions in Africa with a total of 485 deals valued at $19.4 billion in the
first half of 2017 alone.



“Overall, few mergers and acquisitions are taking place in
Africa. If you look at the statistics, there has been a downturn of mergers and
acquisitions since 2017 and I think this is due to political uncertainty and
unpredictability, especially where Nigeria is concerned,” says Bismarck Rewane,
CEO Financial Derivatives, an economic think tank in Lagos. 



With regard to Africa’s largest economy, the trend in
M&amp;A transactions in the banking sector are largely driven by regulatory
directives.







“Back in 2010, the Central Bank of Nigeria instructed
commercial banks to diversify from their non-banking activities or adopt a
holding company structure in the event they chose to retain their non-banking
activities. This meant that a majority of the banks chose to divest, which gave
opportunities for a lot of M&amp;A in 2013 and 2014,” Rewane says.



Other factors influencing the increase in M&amp;A include
synergistic needs, the need for competitive advantage as well as growth. Each
M&amp;A transaction is distinguished by the relationship between the two
companies that are merging. A horizontal merger occurs when two companies are
in direct competition and share the same product lines and markets come
together. 



In Nigeria, this type of activity is especially prevalent in
the oil and gas sector. 



Other notable mergers in 2017 include Coca Cola’s investment
in Chi and Suntory Beverage and Food’s investment in the GSK beverage business.




Conglomeration refers to two companies that have no common
business areas. In the agriculture sector in Nigeria, Abraaj’s investment in
Indorama Fertilizers is an example of this. 



Underpinning these M&amp;A activities in Nigeria is key legislation including the Security and Exchange Commission (SEC) rules and regulations and the Companies and Allied Matters Act (Chapter C20) laws of the Federation of Nigeria.



“The SEC regulates M&amp;A activity together with
sector-specific regulators depending on the target’s business. Nigeria does not
yet have a competition-specific law or regulators, the listing rules of the
Nigerian Stock Exchange apply to M&amp;A deals involving listed companies,”
says Oscar Onyema, CEO of the Nigerian Stock Exchange. 



In the financial sector, another recent example of a
horizontal merger is the recent announcement of Diamond Bank in 2019 to accept
a winning bid from Access Bank. Financial experts believe the move will create
Africa’s largest retail bank by customers.



“Access Bank has, over the years, built a very strong
corporate banking business and commercial banking business, very strong on
treasury and very strong on risk management. We have also built and pursued a
value chain management strategy to deepen our retail incursion. Diamond Bank
brings a very strong and phenomenal retail base. They have invested
significantly in digital and they have been extremely successful as far as
reaching out to customers with 17 million customers and a very significant
retail base,” says Herbert Wigwe, CEO, Access Bank, in an interview with CNBC
Africa.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">Consequently, the new merger is going to provide a robust, large, diversified commercial bank with a very extensive retail footprint according to Wigwe. </blockquote>



From Diamond Bank’s perspective, the merger presents an
opportunity to join a tier-one bank and become a formidable platform.



“I think we have built a fantastic retail platform, but for
us to really maximize the resources that we have invested, we wanted access to
a bigger platform, a platform that allows us to really drive the value chain
across for our customers and one that gives our customers access to many
multiple touch points as well,” says Uzoma Dozie, CEO of Diamond Bank, in the
same interview.



It is worth noting, however, that not all M&amp;A activities
are successful.



“There are many failed attempts at mergers and the reason,
sometimes, is due to a lack of proper due diligence during merging, overpaying
for deals, difficulty aligning the two operations and a lack of effective
organizational change management procedures,” Cudjoe says.



This is certainly something the Diamond-Access merger needs
to consider moving forward. 



Although the merger may look good on paper with respect to
creating one of the largest financial institutions by customers in Africa with
over 34,000 retail touch points, according to Wigwe, in the short to medium-term,
experts believe there may be some significant challenges that the bank needs to
overcome. 



Top of that list is the issue of the significant
non-performing loans from Diamond Bank that the company has inherited through
the merger, which may affect Access Bank.



But where Nigeria is still struggling to get a handle on its
economy and subsequently, bogged down by the uncertainty of the forthcoming
elections, the M&amp;A climate in Ghana is picking up steam. Financial
deregulation and strong political democracy in the country over the past decade
has fueled a rise in M&amp;A activity, which is attracting foreign direct
investment into the country. This has led to stiff corporate competition with
many organizations looking at M&amp;A as a strategy to improve internal growth.



There are several challenges to the M&amp;A landscape but
Ghana’s economic climate and relative ease of doing business, as well as its
growing size and depth, make the economy a competitive market for M&amp;As. As
a result, the current growth we are seeing in the sector is expected to
steadily grow over the next couple of years.

Tag: Consolidated Bank Ghana

FORBES AFRICA SOCIAL MEDIA

Are Corporate Unions The Way To Go?