Analysis: What Skye Bank Stands To Gain By Acquiring Mainstreet Bank

Sources from AMCON confirms Skye Bank Plc has completed the acquisition of Mainstreet Bank in one of the largest acquisitions in the financial sector. The deal is thought to be worth about N126 billion and will see Skye Bank take over Mainstreet Bank from state owned AMCON.

Many see this deal as crucial to Skye Bank’s future as it strives to maintain market share and secure a comfortable capital adequacy ratio with buffers. Deals like this are expected to provide synergies and value for the acquirer even though history also shows many challenges such as integration issues,  downsizing, culture assimilation etc can work against expected synergies. 

There are however a few immediate upsides Skye Bank can begin to enjoy from this acquisition. Here are some of them.

Branch Network

Mainstreet Bank has about 200 branches nationwide which will help Skye Bank consolidate market share as a leading Tier 2 Bank and possibly challenge some Tier 1 bank.

Mainstreet Bank also has nine cash centres and 200 Automated Teller Machines (ATMs) which Skye Bank will now own.

Equity

Mainstreet Bank as at 2013 had in its annual report N75.5billion in equity and could probably be worth N85 billion if 2014 result is included. This is perhaps the most important part of the acquisition and crucial to meeting Skye Bank’s capitalisation targets. At N126 billion Skye Bank is probably paying 1.5x the net assets of Mainstreet Bank which may seem high considering that most banks (Skye Bank especially) trades at a discount to their equity. Nevertheless, the price seems fair for an acquisition of this nature.

Clean Books

Many also suggest Mainstreet Bank has a cleaner balance sheet following their nationalisation. The bank’s loans are less toxic than even Skye Bank and perhaps many banks in the industry. Though it has less than N60 billion in loans as at 2014, Skye Bank will be happy to be acquiring smaller but performing loans instead of bigger non performing loans.

Customer Deposits

Mainstreet Bank also has over N160 billion in customer deposits that Skye Bank can leverage. This provides the bank with an additional base for creation of more loans which actually is how banks make money. Skye Bank can actually lend out all that money giving it ample room to increase its earnings.

Shareholders of Skye Bank should be happy about this acquisition even though questions still revolve around how it funded it and whether shareholdings will be diluted significantly now or in the nearest future. There is also the risk of the acquisition not providing the expected synergies.