The Egyptian market is witnessing activity in the acquisition of financial consultancy licences as companies seek to avoid procedures required by the Egyptian Financial Supervisory Authority (EFSA) to issue new licences.
The demand for financial consultancy licences comes in light of expected growth in the operation of conducting fair value reports required to list companies in the Egyptian Exchange (EGX). In addition, mergers, acquisitions, and restructuring operations are expected to grow under continuing fluctuations in the Egyptian economy, which pushes companies to restructure their businesses. These operations act as the base of financial consultancy businesses.
There are other factors pushing parties interested in working in the consultancy field to acquire existing licences instead of pursuing new ones. Most prominent among these factors is the benefit of a good reputation achieved by companies subjected to acquisition.
Moreover, the cost of existing licences is no greater than the new ones, especially for small companies.
Managing director of Mubasher for Securities Ehab Rashad said his company seeks to acquire a financial consultancy licence instead of completing the procedures for issuing a new one. Rashad attributed this decision to the requirements for selecting a managing director that is not available in the new company.
Rashad added that the company has not yet found anyone who meets the requirements for the position of managing director.
“That is why I preferred the acquisition of an existing company licence, provided that its managing director will work in the new company that Mubasher will establish through this licence,” said Rashad.
Rashad explained that Mubasher has been trying to issue the licence for over a year, adding that they do not want to waste more time meeting all the requirements of issuing a new licence to establish a financial consultancy firm.
He stressed that the selection of a managing director from outside the Mubasher team will not change anything regarding the strategy developed by the parent company, given that the performance of the managing director will be under board supervision.
Financial consultancy licences have seen an increased trade volume in recent months as companies that have suffered loses look to sell their existing licences to companies seeking to buy, said managing director of Eagle Advisors Yasser Emara.
Emara added that the situation has created supply and demand for these licences, as there are companies that do not want to work from scratch in this field, but seek to acquire companies already operating with good reputations in the market.
The cost of buying pre-existing licences will be close to the value of obtaining new licences if the company subjected to acquisition is small or has not yet achieved a quality reputation in the market, said Emara.
Emara added that the comparable cost of both licences makes already existing licences better, in some cases, for companies that seek to avoid the procedures of purchasing a new one.
Capital Market Law requires the minimum capital of EGP 250,000 for financial consultancy firms.
The list of financial consultancy companies in the EFSA includes 60 names.