Shuaa-ADFG merger to create entity with $12.8bn assets under management

Dubai investment bank Shuaa Capital agreed to merge with its largest shareholder, Abu Dhabi Financial Group (ADFG), in a deal that would create a listed entity with Dh47 billion assets under management.

Under the terms of the agreement, Shuaa will issue 1.47 billion new shares to Abu Dhabi Capital Management, the parent company of ADFG, in return for the entire issued share capital of ADFG, Shuaa said in a statement to the Dubai Financial Market, where its shares trade. Abu Dhabi Capital Management will own 58 per cent of the combined entity, while existing Shuaa shareholders will control the remaining stake, it added.

The agreed valuation represents a premium of more than 60 per cent to the Shuaa share price on March 21, the last trading day before the announcement of discussions about a merger, according to the filing.

Shuaa was valued by an independent valuer at Dh1.1bn, which pushed the total value of the combined entity to Dh2.5bn, said Jassim Alseddiqi, chief executive of ADFG.

"The transaction is a natural next step, enabling ADFG and Shuaa to accelerate their growth ambitions by fully integrating the two businesses," Shuaa said. "It represents a transformational combination to establish the leading asset management and investment banking platform in the region."

The transaction, agreed by Shuaa's board, still requires regulatory approval and a nod from the company shareholders who will meet on July 11 to vote on the deal. . The deal will be finalised in the third quarter of this year, Shuaa said.

Following the admission of the new Shuaa shares, the issued share capital of the investment bank will increase to 2.53 billion shares. The new Shuaa shares will be subject to a 12-month lock-up from the date of admission. The merged entity will remain listed on the DFM and is expected to be branded ADFG, according to the bourse filing.

“We believe that there is a compelling investment proposition to establish a regional financial services powerhouse by bringing together two market leaders,” Mr Alseddiqi said.

“Having seen consolidation of the banking industry in our region, the wider financial services industry is ripe to benefit from the same process.”

ADFG bought a 48.36 per cent stake in Shuaa in 2016 and pursued a turnaround of the struggling investment bank, which fell on hard times following the 2008 financial crisis. The plan focused on growing assets under management, leveraging its balance sheet and expanding in Saudi Arabia and Egypt.

The combination of ADFG and Shuaa will further support the expansion strategy and transform it into a pan-regional, one-stop financial services platform, said Shuaa.

“Having made progress in turning our business around over the past three years, supported by ADFG as a major shareholder, we now see the potential to accelerate Shuaa’s growth,” said Fawad Tariq Khan, chief executive of Shuaa. The combined business, he said, has “considerable synergies”, which will help drive business performance.

Shuaa, which has looked at several mergers and acquisition opportunities since its bounce back to profitability a couple of years ago, will continue to look for deals "opportunistically" as a merged entity, Mr Alseddiqi said.

"For us further further M&A would be opportunistic. If we see an interesting opportunity, which is value accretive to shareholders, of course we will go ahead with that," he said.

"At that time we will decided what's the best way … whether funds or further share issuance [to finance the deal] …. it all depends on the transaction, the [nature of the] opportunity and the timing." 
The company is not currently looking at any potential deal, he said.

Mr Alseddiqi said the merger of Shuaa with ADFG was not driven by Shuaa's exposure to the now defunct Abraaj Capital. Shuaa reported a first-quarter loss, citing its legacy exposure to the private equity firm in May.

"[In terms of Abraaj] Shuaa has very small legacy investment. it is less than 5 per cent of its [Shuaa's] assets so this not relevant at all [in the merger deal]," he noted.

The failure of the private equity firm, he said, has negatively impacted the sentiment but the region's financial sector has moved on from what happened last year and "just like Abraaj was a disappointment, there are lots of successes in the region that we have to celebrate: one example is what we are talking about right now [the Shuaa-ADFG merger]", he added.