Bloomberg News

Absa Targets Smaller Companies to Climb South Africa M&A League

June 21, 2011

June 22 (Bloomberg) -- Absa Group Ltd. is tapping the international expertise of its parent Barclays Plc in a bid to scale South Africa’s rankings for mergers and acquisitions.

Absa Capital, the investment banking unit of the Johannesburg-based lender, headed the country’s debt underwriting league table last year by focusing on the nation’s 100 largest companies, according to data compiled by Bloomberg. The bank doesn’t feature in the M&A rankings.

The bank plans to close the gap on Standard Bank Group Ltd., South Africa’s leading M&A adviser, by targeting the “next layer” of companies, said Absa Capital Chief Executive Officer Stephen van Coller. Absa will combine its South African transactions with the U.K.’s second-biggest bank to give local companies access to deals and investors outside the country.

“The Barclays alliance is a key differentiator if they can use that effectively,” said Faizal Moolla, an analyst at Avior Research Ltd. in Cape Town. “It allows them to compete locally and internationally.”

Absa will focus on about 650 local companies with annual sales of more than 750 million rand ($111 million), compared with the bank’s previous threshold of about 2 billion rand, Van Coller said. That has the potential to generate revenue of about 1.5 billion rand for Absa, he said.

“We’ve pitched up to play,” Van Coller said in a June 14 interview in Johannesburg. “There is a big gap there that Absa hasn’t covered.”

Absa Capital may add another two people this year to its 20-strong cash-equity team with the potential for another four hires in 2012, Van Coller said. A seven-member M&A team will be built slowly up as the bank wins more mandates, he said.

M&A Push

“We’ve been criticized in the past because we didn’t do equity capital markets and M&A,” he said. “We haven’t tried to be in those businesses, because we didn’t have the ability to compete. Now we can.”

Absa Capital is advising on three transactions involving commodity companies and another relating to a consumer goods company, Van Coller said, declining to provide details because the deals are still private.

“We see Absa Capital becoming a more important component of Absa’s earnings,” said Moolla, who has a “sell” recommendation on the stock because of a slowdown at the bank’s retail unit. “The corporate side will benefit the business.”

The investment bank will also step up lending and risk management services, such as currency swaps and hedging, to state-owned companies, such as power utility Eskom Holdings Ltd. and ports and freight rail operator Transnet SOC Ltd.

Infrastructure Spending

Eskom plans to spend 550 billion rand through to March 2017 and Transnet 110 billion rand over the next five years and part of the funding needs to come from outside South Africa, Van Coller said.

Absa and Barclays, along with JPMorgan Chase & Co. and Bank of America Corp.’s Merrill Lynch, in January advised Eskom on the sale of $1.75 billion of bonds.

By bulking up its business, Absa Capital can “bite both ends of the cookie” by advising and executing transactions, Van Coller said.

“Advising is the entry point that helps you sow up the back-end,” he said. “That’s where the juice is.”

--Editors: Dylan Griffiths, Frank Connelly.

To contact the reporter on this story: Vernon Wessels in Johannesburg at vwessels@bloomberg.net

To contact the editors responsible for this story: Riad Hamade at rhamade@bloomberg.net


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