Access Bank: Leveraging Acquisition For Industry Leadership
Despite the belief that the bank is treading where the devil fears most by its spate acquisitions, it has proved the pessimists wrong and sent jitters down the spine of its rivals with biggest assets, revenues and deposits in the industry.
One of the biggest lessons taught by Gary Hamel and C.K Prahalad , authors of “Competing for the Future” is the power of foresight . The duo noted, if any corporate entity must attain the status of industry leadership one of the critical success factors is the power of foresight .To them . ”competition for industry foresight, essentially a competition to establish one’s company as the intellectual leader in terms of influence over the direction and shape of industry transformation is one of the critical stages where the industry leadership battle is fought and won”
For the above reasons, every aspirant to the position of leadership ,not only in the corporate world but in any field of life, rarely jokes with this nine-letter word before entering into the battle field of leadership . The trick is to see the future before it arrives.
This is particularly so as industry foresight helps managers answer three critical questions: first, what new types of stakeholders’ values should we seek to provide ? Second, what new competencies will we need to build or acquire to offer those values to stakeholders ? And third, how will we need to reconfigure the stakeholders’ interface over the next several years? No doubt , it gives a company the potential to get to the future first and stake out a leadership position.
Undoubtedly , Access Bank Holdings Plc , one of the tier 1 lenders in Nigeria is in the battle for its industry leadership and the bank has proved beyond any doubt it possesses the prescience needed to proactively re-shape the Nigerian banking industry evolution and occupy that industry leadership in the real sense of it .
This ambition is conspicuously driven by its relentless moves for acquisition both at domestic and international fronts ;it has unequivocally embarked on this mission for some years now with a deep sense of purpose and destiny , conviction and passion. And this has continued to generate deep inspiration from its workforce and other stakeholders.
Earlier, it acquired both the rested Intercontinental Bank and Diamond Bank and others outside the country . The bank’s acquisition move is yet to come to an end. The bank is planning on entering 26 markets by 2027 compared to the 17 countries it operated in as of January 2023 .Recently, in order to translate this dream to reality , it has entered into various pacts with Standard Chartered Bank to acquire the British Bank’s subsidiaries in four African markets. This is as Standard Chartered’s banking operations in Angola, Cameroon, The Gambia and Sierra Leone are up for sale .
This current move signals Access Holdings’ most aggressive push for expansion beyond its home market , Nigeria, since it commenced operation in the country in 1989 as Access Bank.
An acquisition drive is ,indeed , a critical weapon in the hands of every strategic leader ; it is a means of growing a corporate entity and pursuing certain strategic choices, or options, that are potentially available to it in responding to certain positioning issues in the operating environment as well as in the industry . Such strategic choices include its competitive business strategies or how it competes in a market ,how broad and diverse it is in terms of its corporate portfolios, how the organization is created and how innovative it is and how far it extends itself internationally ;these options are expected to help to alter each player’s strategic position from time to time by gaining some competitive advantages over its rivals .
Notwithstanding , acquisition is not the only means of pursuing strategies . Other methods include by organic or strategic alliance .Though , mergers, acquisitions and alliances are key methods for pursuing strategic options which include diversification, internationalization and innovation and are the principal alternatives of ‘organic’ development which is the pursuit of a strategy by relying on a company’s own resource for growth, all are targeting the same goals . In other words , the main strategic options – diversification, internationalisation and innovation – can all be achieved through mergers and acquisitions, alliances or organic development. Of course, these three methods can also be used for many other strategies as well, for example consolidating markets or building scale advantages.
However ,while Access Bank embarks aggressively on a chain of acquisitions, taking control of another company through share purchase, by purchasing a majority of shares in a target company, some of its close rivals largely depend organic approach, relying on internal resources for growth. Guaranty Trust Bank ,First Bank and Zenith Bank appear to be applying a great deal of moderation to acquisition ; at least in the recent time, they are not known to be fleet footed or passionate about acquisition. Access Bank is not the only one too ,using acquisition to drive its growth . UBA is another bank with the same drive ,positioning itself African global bank. However ,some critics of Access Bank believed the bank is overusing this weapon considered to be extremely risky .
THE FEAR ,THE HOPE BEHIND ACCESS BANK’S ACQUISITIVE DRIVE
The obsession of Access Bank with acquisition as a driver of its growth has triggered a maelstrom of public commentaries ranging from tepid to outlandish and brilliant ;the whole spectrum of thoughts has been that the choice and its obsession is considered to be more risky ; in fact , the belief is that such a corporate entity is treading where the devil fears most.
The reason behind the fear over Access Bank’s acquisitive drive may not be far to seek . Most importantly , some banks in the past had hands burnt for taking similar initiative . For this reason , Access Bank’s preference for and obsession with acquisition, no doubt , has continued to raise several questions from its critics .Why is Access Bank Holdings endlessly pursuing its strategic choices by acquisition rather than by organic means? Has Access Bank been better off with this approach ? Why has the bank not employed the organic approach to pursue the above strategic options ?
A comparative analysis of both approaches definitely shed more light on the fear of Access Bank critics on its preference for endless acquisition . To these pessimists, the belief is that acquisition is fraught with more limitations that may frustrate any corporate entity’s dream of industry leadership relative to organic approach
First , mergers and acquisition are usually avoided by many organizations because they often lead to spectacular failures.This is simply because the acquirer is likely to be forced to withdraw at great financial and strategic expense or due to post-acquisition integration difficulties. According to some analysts’ very many, perhaps as much as half of M&A , fail .
Moreover , acquisitions can go wrong because of excessive initial valuations, exaggerated expectations of strategic fit or underestimated problems of organizational fit .
Also , some analysts believed while the approach is potentially useful , it is not believed to be a good substitute for organic approach .The suspicion is that top management often sees a major acquisition as the only escape route from a business that has become hopelessly mature.
Moreover ,they believe that , often, few acquisitions actually benefit the shareholders of the acquiring company, yet acquisitions are in many cases, according to some analysts ,an easy way out for senior executives that too intellectually lazy to think through the future of the firm’s “core” business and too unimaginative to discover new ways of deploying existing capabilities.
Although mergers and acquisitions (M&A) frequently grab the headlines, as they involve large sums of money and can affect a wide range of stakeholders, yet acquisitions typically require an immediate upfront payment for the target company.
With the above defects , then , what has Access Bank seen in its spate of acquisitions ? One answer to this question is that .acquisitions can also provide a speedy means of achieving major strategic objectives.
In spite of this beauty of acquisitions, however , many corporate organizations prefer the organic method considered as the default method for pursuing a strategy by relying on internal capabilities to acquisition . Indeed, the organic method is typically regarded as the most effective with sensitive soft capabilities such as people.
Using the organization’s existing capabilities to pursue a new strategy enhances organizational knowledge and learning , has the advantage of not being dependent on the availability of suitable acquisition targets or potential alliance partners ;it provides independence as the organization does not need to make the same compromises as might be necessary if it made an alliance with a partner organization , allows the spreading of investment over the whole time span of the strategy’s development with the reduction of upfront commitment that may make it easier to reverse or adjust a strategy if conditions change ; it also allows new activities to be created in the existing cultural environment, which reduces the risk of culture clash that could occur with external growth options.
But the organic strategic method too has its own defects . The reliance of organic development on internal capabilities can be slow, expensive and risky, as shown by the lengthy gestation period and earlier failures. Moreover , it is not easy to use existing capabilities as the platform for major leaps in terms of innovation, diversification or internationalization,
Since every method used in pursing strategies has its own pluses and minuses what matters most is moderation ; some analysts believed it is not really the option chosen by any corporate organization but having one’s own view of what each wants and the capabilities to deliver .values for money for their stakeholders .
This is exactly what Access Bank has demonstrated . Despite the above challenges or against all odds the bank has continued to proved itself to be equal to the challenges from its acquisition agenda as well as others from the forces in the macro and industry hostile operating environment ; its move to the position of the industry leadership has been supersonic in the last few years .
HOW ACCESS BANK IS PROVING PESSIMISTS WRONG ,OUTPERFORMING RIVALS
No doubt , Access Bank’s acquisition drive is speedily enhancing its chances of achieving its leadership dream . In scope and breath ,the bank has changed dramatically .With its spate acquisitions Access Bank is becoming well diversified as it is speedily operating in different markets with multiple SBUs with their own strategies for their specific markets
Consequently , it has continued to exploit the advantages of certain potentially value-creating drivers for diversification including exploiting economies of scope by extending the scope of the organisation’s activities and gaining efficiency by applying the organisation’s existing resources or capabilities to new markets or services; it is equally stretching corporate management capabilities by applying the skills of talented corporate-level managers or ‘corporate parenting skills to new businesses and increasing market power since diversifications in many markets increase the market power vis-à-vis competitors.
This is more so as having a diversified range of businesses increases the power to cross-subsidize one business from the profits of the others .
Figures from its financial books confirm the above view as much .Going by its 2022 full year results declared by the bank, its total assets hit approximately N15trilion , making it the biggest bank in Nigeria .Also ,its deposits from both the financial institutions and customers inched up above N11trilions to give it a lead in the industry and to confirm high confidence reposed on it by customers while its total revenue within the same period was N1.4 trillion ranking it above its peers in 2022 and confirms the capability of its money making machine
Gaining the above strategic position is a function of its corporate strengths in terms resources and competences available to deploy such resources and exploit both the potential opportunities and minimize the threats in the operating environment at both macro and industry levels as well as leveraging the influence of its stakeholders to deliver their expectations . .
The bank has already built strong reputation, technological richness and deep pockets, the prerequisites for getting the industry leadership. Access Bank is, indeed , an example of a company that overcame seemingly insuperable resource handicaps and built positions of global leadership .
The above stellar performance of the bank could specifically be pinned down to the capabilities of the management at the corporate level’ ,in addition to the business level competitive strategies . Its ability to select an appropriate portfolio of individual SBUs and manage them by establishing their boundaries by market, geography or capability and to add value to the group; this effectively has continued to give it a competitive advantage over other corporate parents in acquiring and managing different businesses.
Despite the inclement macroeconomic environment and intense competitive rivalry in the industry, Access Bank’s unflinching commitment to acquisition both financially and emotionally , its ability to acquire the competencies necessary to shape and profit from the future , to discover an appropriate configuration of price, features, size, and technology necessary to unlock the future market are all the driving forces behind its competitive position in the industry . Others include its ability to establish the appropriate and superior the industry standard and to keep up in the battle for market share with fast-paced improvement in service delivery and cost reduction . .
By the above achievements ,Access Bank has demonstrated it has the capacity for global preemption and what is helping its global preemption also are its capability to build banner a brand that predispose customers to patronize its services in markets, secure access to critical channels in Africa and develop an internal capacity to quickly propagate new service innovations among other things considered as prerequisites to that preemption.
Access Bank has proved itself capable of serving and satisfying the most sophisticated customers and it is confident that it is well-prepared for a global roll-out; it is gradually capturing strategic markets with sizes and the opportunities that have the capability for amortizing development costs, markets that are strategic because of their rates of growth and the prospect of future growth and more so because such markets are outside its competitors’“profit sanctuary.”.
Battling For Profit Leadership
But despite the above feat , some critics of Access Bank’s acquisitive drive appear to be blind to the above exploits of the bank . To them the growth in organizational size or revenue, deposits or assets is rarely a good enough reason for acquisition on its own .Growth in deposit, assets size and revenue ,to them , must not be only profitable , it must deliver better value for money . They believed its growth is merely a form of ‘empire building’ .
The above argument , no doubt , is true. This is particularly so because smallness without stretch and leverage is impotence just as bigness without stretch and leverage is obesity .What is the essence of having the biggest revenue ,assets and deposit without translating them to the biggest profit in the real sense of it ?
The critics are, no doubt, anchoring the above argument on Access Bank’s profitability relative to the above exploits and its rivals . The bank’s Profit from continuing operations declined to N155.87b in 2022 financial year from N160 b in 2021.
However , Access Bank is not oblivious of this fact too .The bank from all indications , is combining growth in those areas such as assets ,deposits and revenue with high profitability. To an insider, the critics of Access Bank are nothing but disingenuous. First , everybody who is knowledgeable about acquisition knows high cost and integration are the major debacles battled by any acquirer . Moreover , he noted that Access Bank’s full year results for 2022 for instance should not be used as a yardstick to benchmark it with its rivals in isolation without the circumstance surrounding it .He explained that the bank’s profit backtracked due to a one off huge provision made on its exposure in Ghana Eurobond . Without this provision Access Bank ,he said ,the would have netted above N250b as its profit after tax .
The above argument may not be farfetched . One observation that cannot be disputed is that without this circumstantial provision the bank could have been few steps behind Zenith Bank, the bank with the biggest profit in the industry and could have consequently overtaken Guaranty Trust Bank ,First Bank and UBA . Even with this circumstance, sound and knowledgeable analysts rarely consider one off circumstance ,whether positive or negative, extraordinary if it is not sustainable .
Moreover , Access Bank was not the only victim .As at December 31, 2022, Nigerian banks with subsidiaries across Africa had direct and indirect Ghana Eurobond holdings of about N800 billion ($1.7 billion) .This accounted for an estimated 4 per cent of the Industry’s total investment securities and this led to significant losses of at least N284 billion from some investments in Ghanaian bonds crisis .
The affected Nigerian banks recorded impairment charges on the bond, varying from 10% to 59% of the outstanding value of their respective investments .Access Bank was the worst hit and consequently, it made the biggest impairment loss of about N103 billion . . However , the provision may not be sustainable once the issue is resolved and normalcy returned to that market .
Asides the Ghana’s Eurobond saga highlighted above ,the challenges associated with acquisitions highlighted above as opposed to organic approach are known to be equally impacting enormously on the competitiveness of its profitability ; what is delaying Access Bank’s drive to combine profitability leadership relative to its size leadership in terms assets, deposit and revenue is what makes acquisition less attractive option to its rivals , and this has to do with toxic loans inherited from the entities acquired as well as the heavy cost outlay prompted by acquisitions .
Access Bank had been confronted with the asset quality crisis and high operating expenses inherited mostly from its acquired entities in the last few years .These had led to higher cost to income ratio and provisions for bad loans that consequently keep its profit lower and non performing loan ratio higher relative to its few rivals
But this scenario is becoming a thing of the past . The bank has remained very proactive tackling the issues of the cost debacle and poor asset quality, the potential evil twins of acquisition . Its cost to income and non performing loan ratios have both been on downward trends in the last few years . For instance its non performing loan ratios improved from 4.3% , 4.0% and 3.7% between half year 2020 to 2022 respectively .
This achievement may not be farfetched. Access Bank has not only continued to create strategic fit between the opportunity in the environment and its resources but adopting resource stretch and leverage which consequently provide the energy and rationale for proactive advantage building competences and industry re-engineering ; it is creating the capability for resource leverage to beat the sprawling cost of acquisitions to demonstrate that it is possible to do more with less.
BEHIND ACCESS BANK’S ACQUISITION DRIVEN PERFORMANCE .
Contrary to the belief of some critics, the outstanding and speedy performance could not only be traced to its spate of acquisitions and mere foresight in the last few years but its ability to outperform its competitors in all critical stages of the race to the future leadership. .
Apart from the battle for the intellectual leadership prompted by foresight and dream for the industry leadership , the key determinants of which company emerges as an industry leader are the capabilities to foreshorten migration paths and influence the direction of industry development as well as gaining upper hands in the battle for market position and market share.
Access Bank has continued to display its unique dexterity in all the above stages rather than solely on its acquisition spree. .While there is no doubt that the bank has palpably gained a deeper understanding in terms of the trends and discontinuities , become be prescient about the size and shape of tomorrow’s opportunities and equally conceived fundamentally new types of customer benefits and radically new ways of delivering existing customer benefits of which the overall goal is to out-think and out-imagine competitors , it is equally battling hard to influence the direction of industry development of which the race is to accumulate necessary competencies, to test and prove out alternate product and service concepts , to attract coalition partners who have critical complementary resources, to construct whatever product or service delivery infrastructure may be required, and to get agreement around competitive standards. By this ,it is actively shaping the emergence of the future industry structure to its own advantage.
While the bank is not relenting in the above areas of competition in the race to the future industry leadership , ,like other players , it is not equally toying with product line extensions, efficiency improvement, and what are usually marginal gains in product or service differentiation at the market level relative to its competitors
Clinching tenaciously to its vision or foresight for an all round leadership and with the current leadership in the above areas driven largely by its acquisition spree, Access Bank is still busy rebuilding its profit engine which encompasses its deep-seated beliefs about what business it is in, what it is delivering to customers, how money is made in this business, what assets and skills are critical, and who its competitors are.
The reason for the above initiative is simple . For a successful firm, the definition of served market, the value proposition put forward to customers, the margin and value-added structure, the particular configuration of assets and skills that yields those margins, and supporting administrative systems together constitute an integral and well-tuned profit “engine” and all are needed to be reviewed and updated
It is equally battling and improving its capability for corporate regeneration ,particularly with the banking industry that is under heated competition as well as dynamic forces of macroeconomic elements and regulatory policies .No doubt , changes in any environment typically threaten the engine’s efficiency just as a threat to a firm’s profit engine may come from improvements made by a competitor to a particular component of that engine .Also , over time , new, more efficient profit engines make older engines obsolete
In the final analysis ,the most exciting observation in the battle for the industry leadership in the Nigerian banking is that every aspirant is laying one claim or the other the leadership in one area or the other, Sequel to this every player is trying to upturn its current strategic position , trying to fundamentally re-conceiving itself, regenerating its core strategies and of reinventing its industry. No doubt , , Access Bank has proved it is capable of getting different ; it is creating new businesses, reinventing its very concept of self its channels, processes, customers , criteria for promoting managers metrics for measuring success and so on to maintain its current exploits and outperform .competition . The ultimate target of every player is the overall struggle is to become the most profitable in every sense of it .For Access Bank the hope is very much bright
