Kenyan investment firm Britam has emerged as the latest king of acquisitions and investors are noticing this, pushing the share price to a record high since listing three years ago.

With a string of share buyout, the Nairobi Securities Exchange-listed firm seems to be planning to become as big in the regional property market as it is in the insurance and fund management business.

Britam on Monday published an information memorandum on its intended purchase of a 99 per cent stake in rival Real Insurance in a cash-and-stock deal valued at Ksh1.3 billion ($15.74 million).

By Friday, Britam’s share price touched a record Ksh20 ($0.22) a share — 22 per cent above the listing price of Ksh9 ($0.10) in July 2011.

Analysts said the rally, which has seen the share rise by 90 per cent over the past three months, was a result of the company’s acquisition strategy that also saw it buy a 25 per cent stake in property development firm Acorn in November last year.

READ: Foreign investor demand pushes Britam shares to new high

Sources said the firm is also interested in acquiring a substantial stake in a reinsurance company, a deal that could be announced in the coming months.

The Real Insurance deal is structured in such a way that Ksh825 million ($9.7 million) will be in cash and Ksh550 million ($6.4 million) in share considerations.

An extraordinary general meeting to approve the deal is slated for February 19, with the transaction expected to be complete by March 31.

Analysts said in determining the acquisition, Britam considered the strong positioning of Real in non-life insurance, its long operational history and customers that comprise leading firms in Kenya.

“It also considered the growth prospects given the presence of Real in promising frontier markets such as Mozambique, Tanzania and Malawi,” said analysts at Standard Investment Bank in a research note sent out on Monday last week.

Analysts are projecting that the stock could climb higher on account of the planned acquisitions.

“There is still room for share price growth, especially in light of the acquisition and expected value to be unlocked from the synergies,” said Geoffrey Maina, a research analyst at Old Mutual securities.

Britam’s major shareholders include investment banker Jimnah Mbaru, its MD Benson Wairegi, Equity Bank chief executive James Mwangi and Equity Bank chairman Peter Munga — who have emerged the biggest gainers in the rally by virtue of their huge stakes.

The acquisitions sit well with Britam’s three-prong strategy of on expansion of its Kenyan business, entry into new markets as well as growing its property businesses.

The acquisition of shareholdings in these companies is important because, it enables Britam to broaden its investments and cut reliance on earnings from listed companies as well as government securities.

In 2011, for example, the country’s stockmarket posted low returns while interest rates shot up, forcing insurance companies to revalue part of their bond holding, which cut their profit earnings.

Over 2011, the NSE lost 30 per cent, leading to Britam to making a loss of Ksh1.9 billion ($21.83 million) compared with a net profit of Ksh2.7 billion ($31.03 million) following the value adjustment of the company’s quoted equity portfolio.

As at the end of the December 2012, shares and fixed income constituted 31 and 21 per cent of the company’s investment portfolio. Majority of the equity is in Equity Bank — 10.64 per cent of the bank — and Housing Finance — 21.46 per cent.

Britam aims to bring share of investment held as equities and fixed income to less than 20 per cent of its total portfolio over the next three years, with real estate — which currently constitutes 5 per cent of its investments — expected to become a key component.

The company plans to develop property in Kilimani, Upper Hill and along Mombasa Road in Nairobi as well as a series of other developments across the region.

The move to acquire Real Insurance is part of the company’s strategy to diversify its investment portfolio from the listed companies as well as expand its geographical presence. Acquiring the company gives it a presence in Tanzania, Malawi and Mozambique.

“The deal is expected to unlock further value for the group because of the projected expanded scale of general business and entry into some of the highest growth markets — accordingly, it is projected in the medium to long-term this acquisition’s impact on earnings will be favourable,” said Britam in its information memorandum on the Real Insurance takeover.

“More importantly, the successful completion of the transaction contemplated herein will permit the company to enter into some of the highest growth markets in Africa, namely Mozambique and Tanzania,” it added.

Tanzania and Mozambique are among the 10 fastest growing economies in the world fuelled by new development centred around oil and gas, power and transport infrastructure.

The acquisition of Acorn is important in light of Britam’s planned real estate projects. Acorn is a major player in Kenya’s real estate sector, developing and managing properties for clients such as Coca-Cola East Africa, Deloitte East Africa and Equity Bank. Britam also plans to establish a property fund as well as list Real Estate Investment Trusts (REITs).

Kenya’s insurance companies have started the next wave of regional expansion beyond the East African Community to participate in the scramble for the African insurance market by the companies from Nigeria, Ghana and South Africa.

Market share

Britam, the eighth largest insurer in Kenya by market share based on the 2012 data from the Association of Kenya Insurers (AKI), has now entered Mozambique and Malawi, through the acquisition of Real Insurance whose market share in Kenya was 3.1 per cent.

Improving incomes across African countries mean a growing middle class that is able to spend on insurance, making the markets magnets for companies with money and expertise.

“Kenya has considerable expertise in insurance, and this is one of the two critical assets you need in insurance, in addition to money,” said Issac Ngaru of Nga’aru and Associates, a regional insurance consulting company.

“This is the advantage Kenyan players have relied upon to follow in the footsteps of emerging African insurance players especially companies from Nigeria, Ghana and South Africa, as more companies look for markets beyond the EAC,” he said.

Regional expansion has been most pronounced among the top 10 insurance companies in Kenya by market share, an indication of their financial strength and ability to fundraise.

AKI data for 2012 shows that Jubilee Insurance is the market leader controlling 11.3 per cent of the market, followed by CIC Insurance at 9.1 per cent, UAP Insurance at 8.2 per cent and APA Insurance at 7.8 per cent.

Britam managing director Benson Wairegi said the expansion strategy will be maintained across other African countries as the company seeks to become the market leader, in the region in the provision of inclusive financial services.

The Kenyan acquisition will not only improve the company’s market share locally but has also pioneered entry of Kenya insurers into southern Africa; Mozambique and Malawi. Britam already has presence in Uganda, South Sudan and Rwanda.

By Peterson Thiongo and Steve Mbogo.