Local telecoms firm Wananchi Group has sold half of its shareholding to an American investor in an effort to build warchest that will allow it boost its foothold in the lucrative telecommunications market and take on rivals.
The firm announced, on Monday, it had sold a half its shares to private equity firm Emerging Capital Partners (ECP) for Sh2 billion. The money should help the company build its own inland fibre optic network and offer voice, video and Internet services at competitive prices.
This would enable the firm compete with rivals Access Kenya, Kenya Data Networks, Telkom Kenya and Safaricom who have already invested on the cable and have the financial muscle to push the products in the market place.
Wananchi Group currently offer their services through satellite, which is 10 times expensive compared to the fibre optic cable, a move that has placed them at disadvantage in a market that is becoming increasingly competitive.
“We shall use this money to advance our plans to become a world class triple-play media company in East Africa,” said Euan Fannell, group chief executive officer of the Wananchi Group.
The deal comes at a time when the local telecoms market is witnessing increased deal-making as high net worth investors buy stakes in local firms in an effort to get a share of Kenya’s lucrative market.
Companies dealing in voice and Internet are emerging as the most profitable, and connection of the country to the international fibre optic link is expected to spur growth in the sector.
The sector has seen a raft of buyouts including Safaricom’s acquisition of two Internet-based firms, Access Kenya bought out another Internet firm and Essar Group increased their holding in Essar Telkom Kenya from 35 per cent to 80 per cent.
“Capital is flowing to areas where there are growth opportunities, and ICT is attracting the most fund right now,” said Gregory Waweru, an analyst at Kestrel Capital.
Over the last two years, Wananchi has attracted a total $88 million in investment funds, from mostly international sources such as Africa Telecoms Media and Technology Fund (ATMTF), which invested $50 million in the firm.
The cash injection helped buy Simbanet, a corporate Internet service provider (ISP) operating in Kenya and Tanzania, Mitsuminet, a cable TV operator and a five per cent stake in East African Marine System (TEAMS)—an undersea fibre optic cable.
Following the capital boost from ECP, ATMTF now shares its ownership in the group with the equity firm, meaning there are now just two shareholders in Wananchi.
ATMTF’s stake in Wananchi is run by an affiliation of business partners known as the East Africa Capital Partners which consists of American media entrepreneur Mark Schneider as well as local shareholders James Gachui, who is the chairman of the Wananchi Group as well as Jimnah Mbaru, who is also the chairman of stock firm Dyer & Blair.
Mr Fannell said Wananchi hoped to use the funds from ECP to boost its fibre network, enhance its customer acquisition strategy and purchase critical equipment which would place it in a position to offer cable television services as well as broadband internet using a fibre network.
“A significant portion of the funds will be used to invest in a data centre as well as customer equipment such as decoders,” he said, saying the firm hoped to grow its customer base from the current 30,000 to 100,000 in three years.
Wananchi will also use the money to upgrade its technical staff, seeking to increase its employee base by 100 more employees by year end.
The firm hopes to roll out its services using a hybrid fibre coax (HFC) network, which is capable of delivering triple-play services to the customer’s doorstep.
HFC is a technology that combines optical fibre and coaxial cable, to deliver both broadband and television signals across a network.
Currently, Wananchi has created a 187 km network using HFC and hopes to increase that figure to over 2,000km by the end of 2012.
This will enable Zuku to provide over 150 high- and standard-definition channels, and will also allow the firm to offer pay-per-view, video-on-demand and network PVR services.
“We believe that pay television, broadband Internet and voice telephony are services that should be enjoyed by the broad mass of people, and that is what drives our rollout of Zuku,” said Mr. Fannell.
ECP is a private equity firm based in Washington DC, with offices in Cameroon, South Africa, Cote d’Ivoire, Tunisia and Nigeria.
It has a track record of successful investments in Africa, and has so far raised in excess of $ 1.6 billion for its investments.
In June last year, ECP announced a $15 million investment in Blue Financial Services which is a non-deposit taking micro lender serving 10 countries in sub-Saharan Africa.
ECP’s portfolio companies have provided cell phones in Sierra Leone and Malawi, flights to Mali, employ thousands of rural workers in Chad and Congo Brazzaville, provide fertilisers to small Moroccan farms and constructs affordable housing for families in Cameroon.