Case spotlight: Small Steps or a Big Jump: The M&A Dilemma at ForteBank, Kazakhstan

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This case was featured in the December 2022 issue of Connect.

Who – the protagonist

Bulat Utemuratov, the main shareholder of ForteBank, and Guram Andronikashvili, CEO.

What?

ForteBank was created in 2012 as a result of the re-branding of Metrocom Bank, which received its licence in November 2007.

In 2009, after the Financial Control Agency of the Republic of Kazakhstan raised minimum capital requirements to $33.5 million, the bank was at risk of not meeting the minimum standards, and started looking for new strategic investors.

Later in 2010, a controlling stake of 80.86% was purchased by Bulat Utemuratov, one of the most prominent entrepreneurs in Kazakhstan.

Guram was appointed CEO of the bank, which focused on becoming a niche player working with small and medium enterprises and corporate clients.

money

Why?

The Kazakhstani Government decided to approve a new financial sector development concept, which would see half of the 38 banks in the country unable to meet the requirements, and close down.

In terms of size, Fortebank was only the 28th biggest, but Bulat spotted an opportunity to grow, as the National Welfare Fund Samruk-Kazyna was selling three large banks which were nationalised during the 2008 financial crisis.

Whilst Bulat wanted to expand, Guram was worried whether the acquisition of the almost bankrupted banks with huge debts and non-performing loans was the right choice. Besides, a trilateral banking merger had never been successfully achieved, even in Europe.

When?

It was in August 2013 when Bulat first floated the idea of merging to Guram.

Where?

ForteBank’s branches and ATMs can be found all around Kazakhstan, and they also offer online banking.

Key quote

“We do not have enough assets and it will be impossible to grow organically in such a short period of time especially in our target B2B focus group.”
Bulat Utemuratov, the main shareholder of ForteBank.

What next?

Guram contemplated his upcoming meetings with the bank partners and top management.

He was sure that the BTA bank was not an option to purchase, but the other two banks Samruk-Kazyna was selling, Temir and Alliance Bank, could strengthen ForteBank’s position in the retail and corporate banking fields.

Guram wondered whether it was better to acquire all of the controlling stake of Temir and Alliance Bank in one go, or enter them slowly, working together with Samruk-Kazyna on restructuring? And what would be a fair price to pay for them?

AUTHOR PERSPECTIVE 

Producing local cases

Yuliya said: “As staff members/PhD students with teaching responsibilities, we use cases to bring new experiences into the classroom, and develop analytical and problem-solving skills in our students. Unfortunately, we have struggled to bring local context in our classroom when using international cases, and there were just a few cases written about Kazakhstani organisations. When the Silk Road Case Centre was established at Narxoz University, it introduced us to the world of case research and case writing.

“We found the ForteBank Merger and Acquisition (M&A) experience interesting and challenging, as it was a relatively small bank in Kazakhstan and it decided to simultaneously bid for two of the largest government owned banks, which were almost bankrupt – Temir Bank and Alliance Bank. Even the consultants appointed for the M&A deal were not sure of success, as there was no instance of success of the trilateral merger of banks, even in the international arena. Experts predicted that the combined entity would be making losses for a few years even if the integration became successful. But it defied market expectation and became profitable from year one. Therefore, it was a very interesting case to investigate and write about.”

handshake

Telling the story

Yuliya continued: “The process of merging with almost defaulted banks was very complicated: debt restructure, non-performing loans management, integration challenges, and financial and managerial analysis. We had to think about how to tell the story, so that it is not too complicated for students to understand. We had to introduce the local context and explain it in a way that it is interesting to read for both local and international students.”

Case appeal

She added: “We have extensively tested the case by using it with bachelor and master level students, including MBA, both online and offline in Kazakhstan, India and through some of our associates at the North American Case Research Association (NACRA).

“The case demonstrates the banking business analysis, practice-based key metrics, and the important considerations of bank regulation, matching and accounting, which all package nicely together.”

Learning the art of negotiation

Yuliya commented: “Students are interested to learn about different banking systems and such a complicated M&A deal. They have to associate themselves with a ForteBank CEO, complete financial and managerial analysis, undertake bank valuation and come up with a M&A decision. It is interesting for them to learn the real story of negotiations with investors, government, and management. They are impressed with real life practices and happy to learn practical bank-specific metrics.”

Top tips

Yuliya concluded: “Our tips for writing a good case are:

  • search for an interesting story with a good decision hook and connect to appropriate theories
  • tell stories that are interesting, novel, relevant
  • embed the context into the story but keep in mind a global audience when developing the case
  • make sure at the outset that the organisation provides you with permission, otherwise the entire case development effort can be in vain
  • have rigor in data collection, engage in the field through interviews, conversations, participant observations and archival data
  • if the country context is novel (like Kazakhstan), give enough insights through the case and exhibits
  • the teaching note should have questions that are engaging and at the same time do justice to knowledge development and application, critical thinking, teamwork and decision making.”

THE CASE 

The case

Who – the protagonist

Bulat Utemuratov, the main shareholder of ForteBank, and Guram Andronikashvili, CEO.

What?

ForteBank was created in 2012 as a result of the re-branding of Metrocom Bank, which received its licence in November 2007.

In 2009, after the Financial Control Agency of the Republic of Kazakhstan raised minimum capital requirements to $33.5 million, the bank was at risk of not meeting the minimum standards, and started looking for new strategic investors.

Later in 2010, a controlling stake of 80.86% was purchased by Bulat Utemuratov, one of the most prominent entrepreneurs in Kazakhstan.

Guram was appointed CEO of the bank, which focused on becoming a niche player working with small and medium enterprises and corporate clients.

money

Why?

The Kazakhstani Government decided to approve a new financial sector development concept, which would see half of the 38 banks in the country unable to meet the requirements, and close down.

In terms of size, Fortebank was only the 28th biggest, but Bulat spotted an opportunity to grow, as the National Welfare Fund Samruk-Kazyna was selling three large banks which were nationalised during the 2008 financial crisis.

Whilst Bulat wanted to expand, Guram was worried whether the acquisition of the almost bankrupted banks with huge debts and non-performing loans was the right choice. Besides, a trilateral banking merger had never been successfully achieved, even in Europe.

When?

It was in August 2013 when Bulat first floated the idea of merging to Guram.

Where?

ForteBank’s branches and ATMs can be found all around Kazakhstan, and they also offer online banking.

Key quote

“We do not have enough assets and it will be impossible to grow organically in such a short period of time especially in our target B2B focus group.”
Bulat Utemuratov, the main shareholder of ForteBank.

What next?

Guram contemplated his upcoming meetings with the bank partners and top management.

He was sure that the BTA bank was not an option to purchase, but the other two banks Samruk-Kazyna was selling, Temir and Alliance Bank, could strengthen ForteBank’s position in the retail and corporate banking fields.

Guram wondered whether it was better to acquire all of the controlling stake of Temir and Alliance Bank in one go, or enter them slowly, working together with Samruk-Kazyna on restructuring? And what would be a fair price to pay for them?

AUTHOR PERSPECTIVE 

Author perspective

Producing local cases

Yuliya said: “As staff members/PhD students with teaching responsibilities, we use cases to bring new experiences into the classroom, and develop analytical and problem-solving skills in our students. Unfortunately, we have struggled to bring local context in our classroom when using international cases, and there were just a few cases written about Kazakhstani organisations. When the Silk Road Case Centre was established at Narxoz University, it introduced us to the world of case research and case writing.

“We found the ForteBank Merger and Acquisition (M&A) experience interesting and challenging, as it was a relatively small bank in Kazakhstan and it decided to simultaneously bid for two of the largest government owned banks, which were almost bankrupt – Temir Bank and Alliance Bank. Even the consultants appointed for the M&A deal were not sure of success, as there was no instance of success of the trilateral merger of banks, even in the international arena. Experts predicted that the combined entity would be making losses for a few years even if the integration became successful. But it defied market expectation and became profitable from year one. Therefore, it was a very interesting case to investigate and write about.”

handshake

Telling the story

Yuliya continued: “The process of merging with almost defaulted banks was very complicated: debt restructure, non-performing loans management, integration challenges, and financial and managerial analysis. We had to think about how to tell the story, so that it is not too complicated for students to understand. We had to introduce the local context and explain it in a way that it is interesting to read for both local and international students.”

Case appeal

She added: “We have extensively tested the case by using it with bachelor and master level students, including MBA, both online and offline in Kazakhstan, India and through some of our associates at the North American Case Research Association (NACRA).

“The case demonstrates the banking business analysis, practice-based key metrics, and the important considerations of bank regulation, matching and accounting, which all package nicely together.”

Learning the art of negotiation

Yuliya commented: “Students are interested to learn about different banking systems and such a complicated M&A deal. They have to associate themselves with a ForteBank CEO, complete financial and managerial analysis, undertake bank valuation and come up with a M&A decision. It is interesting for them to learn the real story of negotiations with investors, government, and management. They are impressed with real life practices and happy to learn practical bank-specific metrics.”

Top tips

Yuliya concluded: “Our tips for writing a good case are:

  • search for an interesting story with a good decision hook and connect to appropriate theories
  • tell stories that are interesting, novel, relevant
  • embed the context into the story but keep in mind a global audience when developing the case
  • make sure at the outset that the organisation provides you with permission, otherwise the entire case development effort can be in vain
  • have rigor in data collection, engage in the field through interviews, conversations, participant observations and archival data
  • if the country context is novel (like Kazakhstan), give enough insights through the case and exhibits
  • the teaching note should have questions that are engaging and at the same time do justice to knowledge development and application, critical thinking, teamwork and decision making.”

THE CASE 

Read the case

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