Kenya’s KCB Group has announced that it paid a total of Sh25.1 billion ($230 million) to acquire an 85% stake in Trust Merchant Bank (TMB) located in the Democratic Republic of Congo (DRC). The acquisition marks a significant move for the bank, as it allows them to gain a foothold in the vast mineral-endowed central African country. The disclosed amount includes a goodwill of Sh3.07 billion, which takes into consideration the future cash flows expected from the deal, as well as the loyal customer base that TMB has established over the course of its 18-year operational history.
KCB Group finalized the purchase of TMB in December 2022, after previously announcing that the deal would be priced at 1.49 times the book value or net assets of the DRC lender. This would have amounted to nearly Sh17.9 billion ($165 million) as of December 2021, when TMB’s net assets were Sh14.15 billion ($130 million). However, TMB’s net assets increased to Sh25.93 billion ($238 million) at the time of the deal, up from Sh14.15 billion the previous year. This led to an increased price to take into account growth in core deposits, loan book, cash, and bank balances.
According to KCB Group’s CEO, Paul Russo, the acquisition of TMB has given the bank the capacity to accelerate its growth ambitions. This includes the ability to tap into trade opportunities that arise with the admission of DRC into the East African Community (EAC). The acquisition also allows KCB Group to unlock large trade opportunities along various trade routes from the Indian to the Atlantic Ocean. These developments position the bank well to deliver a significant increase in the contribution made by its subsidiaries outside of Kenya.
TMB’s contribution to KCB’s profitability has been significant, with the bank estimating that revenues would have been Sh15.29 billion and a pre-tax profit of Sh3.04 billion if the acquisition had taken place at the start of last year. TMB’s revenue in December 2022 alone was Sh2.32 billion, which means that the DRC unit will rival BPR Bank Rwanda on profitability. This is noteworthy, as BPR Bank Rwanda was KCB’s most profitable subsidiary outside Kenya, with a pre-tax profit of Sh3.69 billion.
KCB Group retains the preference right to acquire the remaining 15% stake in TMB within 60 days after December 15 next year. Overall, the acquisition of TMB is set to be a game-changer for KCB Group, providing the bank with a valuable foothold in the DRC’s rapidly-growing market, and enabling it to unlock significant trade opportunities across the region.