Leveraging on Acquisition for Growth
Eromosele Abiodun writes that the acquisition of Mainstreet Bank will improve the industry positioning of Skye Bank in many parameters
Skye Bank is the result of five banks that merged. The merger was a steep learning curve that ultimately resulted in the acquisition of Mainstreet Bank. Latching onto the deep insights from that experience, the bank stands ready to leverage same to achieve a faster integration of the acquired bank according to a fixed timetable.
That timetable, which consists of fusing IT infrastructure, Risk Management, Human Resources, Operations, and Strategy, sources close to the transaction said, was slated for between May and June this year.
Back in 2006, in the days of consolidation of the banking system in Nigeria, Prudent Bank, Co-operative Bank, Bond Bank, Eko International Bank and Reliance Bank merged in a arrangement to meet regulatory requirements. That arrangement is the today Skye Bank Plc. However, the speed with which the consolidation of the five banks was consummated caught the eyes of analysts.
“Skye Bank has calmly, quietly but speedily executed a brilliant transformation and must now be reckoned as one of the best sources of value from the investors’ point of view on the Nigerian Stock Market”, market analysts at Resources and Trust said at the time.
Staying ahead of competition
The merger helped the bank to stay ahead of competition by being the first to introduce, in January 2011, a Naira-denominated MasterCard debit card, called “MasterCard Verve. By that single action, the bank helped construct a new ‘S’ curve in the industry. It was a potentially market disruptive move.
The S-curve framework, which had its origins from mathematics, is a tool for analysing technological cycles and predicting the introduction, adoption and maturation of innovations. That experience and the innovation it unleashed, has thrown up a plethora of questions as to the weight the new combined Skye Bank/ Mainstreet Bank entity could command upon full integration.
Market sources indicate that Skye Bank has engaged the services of seasoned consulting firms to help facilitate integration, “and given their history of integration/change management, there is an expectation that this will be seamless.
The acquisition, analysts said, may have been consummated to help fulfil Skye Bank’s strategic intent, which was well laid out as far back as 2009. At that time, the bank planned a rapid growth agenda in order to be among the five biggest banks in Nigeria by 2011. Although delayed by three years, this agenda could be realised with full integration.
Despite the structural differences between the integration achieved in 2006 (the merger of EIB, Prudent Bank, Bond Bank, Co-Operative Bank and Reliance Bank) and the current transaction, which is an outright acquisition, analysts believe significant synergies can be achieved with integration.
Experts’ opinion
CEO of Proshare, one of Nigeria’s leading market intelligence portal, Olufemi Awoyemi, believes the acquisition will clearly improve the industry positioning of Skye Bank to between 4th and 5th, depending on the parameter(s) applied.
Sounding a note that the ranking may be superior, he said, “To gauge this (the ranking) better, we may have to wait for their 2014 audited financial statements.”
Skye Bank, while reacting to the successful outcome of the acquisition said that it was part of its strategic growth plan. This once again highlights the strategic intent laid out by the bank in 2006, which projected that the bank would have over “400 branches (from 240)and 1000 ATMs (500) by 2011, and wants to build an institution with high performance outcomes, strong governance, a stable culture and deep competences.”
With the acquisition, that strategic intent is looking like a well-executed strategy as the bank is set to configure competencies to play big in the retail and commercial banking sectors with a branch network of 450 and ATM network of 815.
“With this, Skye Bank now has the fourth (4th) largest branch network in Nigeria (from their previous 8th position), ” Awoyemi stated.
According to him, when combined with Mainstreet’s, Skye Bank’s ATMs and POS are now 814 and 8,605 respectively.
“For ATMs, they now have the 4th largest network. This will positively influence their capacity to serve diverse customers across various locations in Nigeria, “he added.
Bank explains acquisition
Analysts’ views tally with the bank’s reason for the purchase. According to the bank the acquisition would help deepen its penetration of the South East and South South regions where it is currently less represented, explaining that out of Mainstreet Bank’s 201 branches and nine subsidiaries, 26 per cent or 54 branches are located in the two regions.
“These two regions also accounted for 28 per cent Mainstreet Bank’s 1.9 million customers, second only to Lagos with 37 per cent. This clearly shows that the integration of Mainstreet Bank will enable us to make valuable in-roads into these two regions without the need to incur huge expenditure had we remained a single entity as Skye Bank”, Skye Bank explained.
Providing further insight, the bank said that the acquisition would bring valuable synergies from the mutual focus areas of commercial and retail banking of the two entities in a larger Skye Bank. The bank noted that its focus is on retail and commercial banking, which are also the main focus areas of Mainstreet Bank Limited.
“In Mainstreet Bank Limited’s 2013 audited results, retail and commercial banking contributed 78 per cent, 36 per cent, and 18 per cent of total deposits, total loans and profit before tax. Also, Mainstreet’s savings and demand deposits accounted for 21 per cent and 43 per cent of deposit mix, which also demonstrated its focus on these two segments”, the bank said.
Branch network
Speaking on the acquisition, CEO, Skye Bank, Timothy Oguntayo, explained that the increased branch network would make the bank’s services easier as branches are now easily accessed by its over five million customers.
Oguntayo said the bank had strongly established its presence in the South-South, South East and the North owing mainly to the acquisition.
Besides the significant vault in customer size, analysts believe that major corporate brands that stuck with Mainstreet Bank (despite their status), offer Skye Bank a share of the business of these corporate organisations.
By the masterstroke of the purchase, analysts say Skye Bank has acquired nine subsidiaries of MBL, with interests ranging from financial services, bureau de change, capital markets, real estate, insurance, micro-finance, registrars, and securities to trusteeship.
Speaking on the subsidiaries Awoyemi said, “Whether Skye Bank divests from these subsidiaries or not, “the likelihood of creating value is very high.”
“For instance, it (Skye Bank) could harness synergies from retaining them, for revenue diversification and reach, or it could realise exceptional income from their divestment, especially when one considers the huge profits made by some banks from recent divestments,” he maintains.
At the expiration of the June timeline for integration, Nigeria’s banking space may very well welcome a change in the competitive dynamics as Skye Bank joins the elite group of first tier banking, which is sitting snug in the hands of First Bank Limited, Guaranty Trust Bank Plc, Zenith Bank Plc and UBA Plc.
Skye Bank will begin to play in this elite group, structuring ticket transactions sorely needed to vault the Nigerian economy, achieve a wider spread to better take care of customers’ needs while ramping up margins that come from a larger volume of transactions.