According to a member of Atlas Mara’s original executive team, “The story isn’t so much about people making mistakes, but about people down on their luck in the markets.”
This impartial verdict stood out from a host of comments made by a dozen investors and African market experts consulted back in October, when the banking group’s share price approached a singular historical threshold: the loss of 100% of its initial value.
On 20 October, the share was trading at around $0.30, representing a 97% drop compared with its IPO launch price of $9.83 on the London Stock Exchange in mid-December 2013.
Atlas Mara’s stated ambition at the time was to become a group operating in some 15 different sub-Saharan African countries. The timing seemed just right given that the post-2008 financial crisis recovery was in full swing.
A string of disappointments
Atlas Mara has certainly had its share of misfortunes. In September 2014, when the African banking newcomer co-founded by Bob Diamond (the former CEO of the UK behemoth Barclays) and British-Ugandan entrepreneur Ashish Thakkar (who at the time was inaccurately praised as “Africa’s youngest billionaire”) announced its plans to acquire a minority stake in Union Bank of Nigeria, oil prices were averaging around $100 a barrel.
By December, oil prices had fallen to $60 a barrel and would remain at that level until 2018. Meanwhile, Nigeria’s economy entered a recession, contracting 1.62% in 2016.
Fast forward to this year, when oil prices have once again plummeted. By June, the agreement Atlas Mara announced just a few months before regarding the sale of four subsidiaries to the Kenyan giant Equity Group had fallen through.
The official reason given for the termination: uncertainties and additional costs resulting from the COVID-19 health and economic crisis. This was a tough setback for Atlas Mara because it made it harder for the company to find a way out of its precarious financial situation and restore investor confidence.
Though plummeting oil prices and the coronavirus crisis have impacted every economy, few groups have experienced such a severe bout of substandard performance, underlining its deep-seated strategic issues, if not a structural flaw at its inception.
Reporting revenue of $92m in 2019 (compared with $163m in 2018), Atlas Mara has virtually disappeared from the radar: very few financial analysts continue to “follow” the group, currently headed by Michael Wilkerson. He also serves as chief executive of Fairfax Africa, Atlas Mara’s largest shareholder. How did the group get here?
An executive team with an investment banking background
In the beginning, everything looked great from the outside. Back then, despite Robert Edward (“Bob”) Diamond’s sudden resignation from Barclays’ management team following a complicated scandal involving rigged Libor rates, the executive retained a certain aura in financial circles, with people remembering him as the ex-star of the Wall Street investment bank Citi and golden boy who revamped Barclays’ business model.
At his side was Thakkar, a media darling presented as the architect of an impressive diversified group – Mara Group Holdings Limited – based in Dubai with operations in 19 African countries and reporting more than $400m in income.
This was a long time before the revelations that came out during Thakkar’s divorce proceedings in 2017, when the entrepreneur claimed in an English court that his assets amounted to a mere €500,000 and that Mara Group was domiciled in the British Virgin Islands under his mother and sister’s names.
“Diamond needed someone who was credible and well-known on the continent. But neither him nor Thakkar had any retail banking expertise. Bob wasn’t familiar with the countries or the business, since at Barclays he worked in investment banking, whereas Atlas Mara’s subsidiaries were dealing in retail banking. The alliance the two co-founders forged was nevertheless good enough to charm institutional investors and raise capital,” a West African investor told us.
As a matter of fact, no less than $325m was raised during Atlas Mara’s IPO launch. Less than six months later, the group raked in a further $300m by way of a private placement to qualified investors. After closing its first financial year, Atlas Mara secured funding from top lenders, including Afreximbank, Standard Chartered and the Africa Agriculture and Trade Investment Fund (AATIF).
But it’s difficult to attribute this success to the founders’ “prestige” alone. From the outset, the holding company’s directors were a cohort of well-known figures such as Arnold Ekpe, former CEO of Ecobank, Rachel F. Robbins, former general counsel at Citigroup, and Amadou Rouf Raimi, ex-chairman of Deloitte France.
In 2014, the holding company applauded itself for having “attracted an extraordinary team”, with Barclays veteran John Vitalo appointed as CEO. It should be noted that upon his arrival, Atlas Mara highlighted the fact that he “was responsible for building and leading Absa Capital, the pan-African investment bank, in Johannesburg”. Yet another investment banker.
$63m loss in 2014
Almost right off the bat, Atlas Mara’s unstable management became apparent. Diamond’s plan came up against a lack of understanding on the part of investors. In April 2015, the former Barclays CEO was accused of overpaying some of the company’s executives and hiding information relating to a personal investment.
Atlas Mara’s first strategic acquisition – three BancABC entities in Zambia, Tanzania and Mozambique purchased in early 2014 for $210m – was widely criticised by analysts. The bank was stuck with significant bad debts in Zimbabwe and fell below Tanzania’s minimum capital requirements.
High operating costs and bad economic conditions in certain host countries resulted in the group reporting a net loss of $63m in 2014.
Simultaneously, a story was making the rounds in the press about a wholesale departure of the Tanzanian subsidiary’s executive team in December 2014, barely a few months after the acquisition. The reason cited was the burdensome administrative procedures imposed by the holding company.
“They created a superstructure at the holding company level, with several administrative offices spread across Dubai, Joburg and the British Virgin Islands. However, in exchange, Atlas Mara expected the countries to deliver a fast return on investment and high profitability in order to finance this structure,” a former executive said.
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At the end of 2015, Atlas Mara reported a cost-to-income ratio of 95% and revenue of $213m. Senior management compensation represented a total of $5.85m.
By comparison, Ecobank, operating in some 30 countries and reporting income 10 times greater than Atlas Mara’s ($2.1bn), had paid out just $7.3m in compensation to its main senior executives, for a cost-to-income ratio of 65%.
Unsuccessful restructuring efforts
“Due to its fundamentally flawed structure, it isn’t possible to generate synergies within the group. Atlas Mara doesn’t have operational control of its major assets such as Union Bank of Nigeria and therefore can’t consolidate or reduce its costs,” said a pan-African investor with ample knowledge of the banking market.
“Without synergies, there’s no reason to pay tens of millions of dollars in holding company fees just to manage bank holdings,” our source said.
As early as 2016, the Diamond-Thakkar duo tried to find a workaround by acquiring Barclays Africa (the continent’s third-largest bank), with the plan of merging its assets with Atlas Mara. In 2016, Barclays Africa Group had $80bn in assets under management and $3bn in income. Atlas Mara’s balance sheet totalled $2.8bn at the time. Ultimately, the transaction never materialised.
The failure to acquire Barclays Africa – since renamed Absa – ushered in a difficult period that would end with the departure of several top executives, including Thakkar. His ouster coincided with the arrival of a new shareholder, Fairfax Africa. This was in 2017. The subsidiary of the Canadian investment group Fairfax Financial, boasting $40bn in assets under management, paid $159m to acquire a 42% majority stake in Atlas Mara.
In the wake of the transaction, a number of executives left and new directors were appointed to the board, including Wilkerson, replacing Diamond when he had to step down from his role as executive chairman in February 2019 after outcry from investors concerned about the group’s poor performance.
Diamond, who has since devoted his energy to another company he founded, Atlas Merchant Capital, in the United States – and who we attempted to reach out to discuss Atlas Mara’s strategic decisions – continues to serve as non-executive director.
To be sure, the UK holding company’s financial performance improved following this infusion of new blood and capital. Atlas Mara’s 2017 revenue increased by 11.5% to $270m, while net profit was up fivefold, reaching $45m.
Nevertheless, the gambit failed to win over the markets. Immediately after the announcement that Fairfax was acquiring a stake in the capital, the Atlas Mara share wasn’t even worth one-third of its IPO launch value. Both the prospect of fund-raising and making further acquisitions was impossible.
What’s more, the group’s accounts were back in the red again as of the second half of 2018. Adversely impacted by the application of the international financial reporting standard IFRS 9 on loan impairment and share price devaluation in Zimbabwe, Atlas Mara’s net income fell again, bottoming at $39m in 2018. A portfolio review was subsequently carried out.
Very quickly, the group decided to exit four out of seven countries of operation, while Atlas Mara’s share price lost almost 85% of its initial value.
In April 2019 there was hope, although it was soon to be dashed, that an agreement could be reached with Equity Group Holdings, the parent company of the James Mwangi-led banking group Equity Bank. As part of the transaction, Atlas Mara was to sell to the Kenyan group a 62% stake in Banque populaire du Rwanda and its entire interest in its African Banking Corporation (BancABC) subsidiaries.
The transaction was valued at 10.7bn Kenyan shillings ($98m). Rather than receive fresh cash, Atlas Mara opted for a 6.3% stake in Equity Bank, a robust and respected group in African markets.
Botched due diligence?
But in June 2020, after several months of delays, the two groups “mutually agreed” to terminate the deal. The official reason given was that the COVID-19 crisis had changed the Mwangi-led group’s expansion plans. Nevertheless, observers said that Atlas Mara had “botched” the due diligence process during the valuation of its acquisitions six years ago.
Atlas Mara’s current management team has declined to confirm this information, claiming they aren’t familiar with the substance of the 2014 negotiations. In August, the Kenyan group ultimately completed the purchase of a majority stake in Banque commerciale du Congo (BCDC) for $95m.
“The transaction with Atlas Mara involved four countries, whereas the deal with the DRC bank involved a single country. When you look at the combined value of what we’re getting, the DRC deal was bigger than the four other transactions taken together,” said Mwangi during an interview in September.
A new operating model
In spite of this setback, Wilkerson has expressed optimism. “We’re in the process of changing our operating model from that of a centralised financial services company to a full-fledged investment company, a holding company back on par with banks,” he said, with the ultimate goal of reducing overhead costs and refocusing the group’s operations.
He added: “After we close the deal with Access Bank, which is acquiring our assets in Mozambique [announced in September], we still intend to pull out of Rwanda, Zambia and Tanzania through a partnership or sale. However, the directors and I remain confident about what the future holds and continue to seek out new opportunities.”
For the record, BancABC Mozambique is the second smallest – after Tanzania – of the four banks Atlas Mara was hoping to sell to Equity Bank. It’s hard to see it as anything other than a consolation prize.
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