Rencap marches on in Africa

Renaissance Capital, the Russian-based investment bank, has taken a further step to become a major pan-African player, with the purchase of Barnard Jacob Mellet's institutional securities business.

The purchase, for up to R207-million, adds a seventh market to Rencap's Africa network and a substantial institutional client brokerage business. It gives Rencap investment analysts, a brokerage licence and established relationships with South Africa's major asset managers.

For BJM, the deal is the first step in a strategy that may lead to the remaining business bought out by management and delisted from the JSE. It will now focus on its private client broking activities and is free to build its asset management capabilities.

Rencap began its acquisition spree in Africa in 2007. The business was formed in 1995 in Russia by a break-away team from Credit Suisse First Boston. It has grown into other former-Soviet markets and set up offices in London and New York. It is now the biggest investment bank in Russia.

Its African exposure began with a stake in Ecobank, the Francophone West African bank that has formed an alliance with Nedbank. It still holds 18% of Ecobank, and has built large securities-based businesses in Kenya, Nigeria, Ghana, Zambia and Zimbabwe. Rencap markets securities to the world's largest money managers through its London and New York distribution centres.

It is now the most established broker with operations in the largest sub-Saharan African economies. Its closest competitor in Africa is Standard Bank, which also has a substantial operation in Russia. The two are set to become more aggressive competitors for deals across Africa.

Andrew Cornthwaite, Rencap's Moscow-based deputy chief executive, said the bank would be able to double the trade volumes to BJM almost immediately.

"We have 150 people in London and New York. No one else has that firepower for dealing in African securities there," he said. The doubling of flows will be necessary to justify the price being paid for the BJM business, which Cornthwaite admits looks "quite racey" from an earnings multiple point of view.

The lack of an international sales network has always been a key weakness in BJM's business model. It had been on the verge of a deal with New York-based Lehman Brothers when the financial crisis struck, putting an end to Lehman and the deal.

"Now we have this retail business that is a straightforward pure retail business that doesn't have to worry about building a full asset management business," said BJM chief executive Andile Mazwai.