First Abu Dhabi Bank (FAB) has launched a bid for Egypt’s biggest investment bank EFG Hermes that values it at EGP 18.5 bn ($1.18bn). EFG Hermes has expanded strongly in Africa and the Middle East and operates leading stockbrokers in Egypt, Nigeria and Kenya as well as leading IPOs, mergers and capital raisings, and research, private equity and asset management.

FAB gave details of its “non-binding offer” (in a statement to the Abu Dhabi Securities Exchange ) to buy at least 51% of the shares in EFG Hermes, which is listed on the Egyptian Exchange (EGX) and with Global Depository Receipts on the London Stock Exchange. Rothschild & Co is advising FAB, according to a report on Bloomberg.

The all-cash offer is EGP 19 ($1.21) per share, a premium of about 21% compared to the share price when trading closed on 8 February.

FAB said “The non-binding offer for a minimum of 51% of the outstanding share capital of EFG Hermes, is subject to due diligence and regulatory approvals from the relevant authorities in Egypt and the UAE. Following the satisfactory outcome of the due diligence process, FAB intends to make a mandatory tender offer in accordance with applicable laws and regulations.”

Under Egyptian market rules, an offer for more than a third of the target company will trigger a mandatory offer for 100% of shares. Trading in EFG Hermes was briefly suspended on 9 February and then the shares rose by 19%, before losing some of the gains.

FAB said: “Headquartered in Cairo and listed on the Egyptian Exchange (EGX), EFG Hermes is a leading diversified financial services institution serving frontier emerging markets, with a strong track record of over 35 years and an outstanding reputation across regional and international markets.

“EFG Hermes is recognised for its strong management team, high standards of corporate governance and its strong brand. The company is an all-encompassing financial institution, spanning investment banking, non-bank financial services, fintech and commercial banking. As of 30 September 2021, EFG Hermes’ total assets were EGP 49.6 billion (USD 3.2 billion), with a net profit of EGP 1,054 million (USD 67 million) for the first nine months of 2021.”

According to the Q3 results, EFG Hermes had net operating profit (after tax and minority interests) of EGP 356m ($22.6m) in the nine months to September 2021, down 16% on the same period in 2020. Investment banking revenue was down 38% year on year to EGP 677m ($43.1m) and made up 57% of the revenue contribution, while non-banking financial income was growing fast and was up 52% to EGP 507m ($32.3m), or 43% of the total.

The EFG Hermes Board met on 10 Feb 2022 and will appoint an international financial adviser and an Egyptian law firm to advise it, according to a statement to the LSE.

Broker Allen Sandeep of Naeem Brokerage in Egypt told news agency Reuters the offer was a steep discount to fair value. He said the offer implies a multiple of 1.3 times price-to-book while the fast growing non-bank financial services business commands multiples of over three times.

EFG Hermes shareholders at the time of the September 2021 (Q3) results included; public (52%), French investment bank Natixis SA (12.9%), US private equity firm Ripplewood Advisers, Rimco EGT Investment and The Bank of New York Mellon.

The FRA said in a statement to EGX that whether or not the offer proceeds depended on due diligence inquiries, which that EFG Hermes would conduct: “It is decided that the purchase offer should be submitted or not in light of the results of the due diligence examination, as well as fulfilling the necessary procedures and obtaining the relevant internal and administrative approvals from the concerned authorities within the Arab Republic of Egypt and the United Arab Emirates.”

A statement from FAB cited by Bloomberg says: “The potential transaction is in line with FAB’s long term strategic ambitions, and beneficial for both parties providing enhanced scale, specialization and significant revenue synergies in investment banking.”

FAB is the UAE’s largest bank with total assets of over AED 1 trillion ($272bn) at 31 December 2021. It first expanded into Egypt by buying Lebanese Bank Audi’s Egyptian operation in 2021. It has close ties to the Abu Dhabi government and is half-owned by sovereign wealth fund Mubadala Investment Co. and by members of the ruling family. The CEO is Hana Al Rostamani who took over in February 2021.

EFG Hermes operates in 13 countries in Africa, Asia, Europe and the US. According to reports, it would stay separate and listed on the EGX.

Its stockbroker firms are ranked #2 on the Abu Dhabi Securities Exchange, #1 on the Dubai Financial Market, #3 on the EGX, and #4 in Nigeria. It has been a leading advisor on major deals and initial public offers (IPOs) across its markets and publishes top research.

As banks in the United Arab Emirates expand they are looking outside the borders. Egypt, Africa’s third most populous nation, is a major investment destination. In 2019 the UAE and Egypt set up a $20bn joint strategic platform to invest in different sectors and the Emirates have been a key backer for Egypt’s President Abdel-Fattah El-Sisi.