Java Coffee House’s founder and chairman Kevin Ashley is on course to pocketing Sh1.3 billion from the sale of his stake to Dubai-based private equity firm Abraaj Group.
Mr Ashley is selling his stake as part of Abraaj’s takeover of the coffee chain at an estimated price of Sh13 billion.
“The Abraaj Group … has entered into a definitive agreement to purchase, through its funds, 100 per cent of Java House Group from ECP and Mr Ashley,” the PE firm said in a statement.
Washington-based Emerging Capital Partners (ECP), which owns 90 per cent of Java, announced at the weekend that it was selling the entire stake to Abraaj as part of a takeover plan that has also forced Mr Ashley to part with his 10 per cent stake.
Abraaj said it could not comment on the financial details of the transaction but people familiar with the deal said it was valued at Sh13 billion.
It emerged as the top bidder in last year’s auction of the coffee chain that also attracted Washington-based Carlyle Group and San Francisco-based TPG.
Java has been on fast-paced growth since its inception in 1999, prompting ECP to acquire 90 per cent of its shares from Mr Ashley and his partner at the time, John Wagner, in 2012.
Mr Ashley said at the time that the coffee chain had used the sales proceeds to expand the business, meaning the Abraaj deal offers Mr Ashley an opportunity to cash in on the investment.
The sale of Java is expected to cement Kenya’s reputation as a high-return market that offers easy exit routes for PE funds and development finance institutions.
Most PE funds and development finance institutions (DFIs) have exited by selling to similar funds, indicating strong demand from the institutional investors that pool funds from wealthy families, pension funds and governments.
Various PE funds have made double to triple digit returns after investing in large and medium-sized firms for five to seven years.
The high returns have been earned across industries, spanning private education, banking, healthcare, insurance and manufacturing.
Mr Ashley has previously said Java’s annual revenues had crossed the Sh4 billion mark.
The company has, from a single shop in Nairobi offering tea and coffee, grown beyond national borders, increasing its attraction to investors.
The coffee chain now has a total of 60 outlets, with an expanded menu that also features international dishes.
It recently introduced two new brands in the Kenyan market – Planet Yogurt (a self-serve frozen yoghurt chain) and 360 Degrees (a pizza restaurant).
Mr Ashley said the opening of new Java shops — which can cost up to Sh70 million each depending on size and location — has been funded by internally generated cash, signalling the company’s profitability and strong cash flows.
That growth has been aided by being at the vanguard of casual dining targeting the growing middle class who pay hundreds of shillings for breakfast, lunch or dinner.
Abraaj said it is this consumer focus in rapidly growing economies that made Java a compelling acquisition.
“Africa’s rapidly expanding middle class, sustained population growth and increasing urbanisation is creating compelling investment opportunities in multiple sectors, and we believe Java House is ideally positioned to benefit from these trends,” Mustafa Abdel-Wadood, Abraaj’s managing partner, said in a statement.
Java says businesspeople and professionals frequent its shops during the day while nights and weekends are dominated by friends and families.
The restaurant chain offers a wide range of food, including breakfast bagels, chicken, fish, pork and vegetarian burger.
The new owners of Java are expected to further expand the company’s footprint locally and in the region.
“As Java House aims to accelerate into its next phase of growth, we were seeking a partner that has the scale, platform and sector expertise to enable us to achieve our aspirations,” Ken Kuguru, Java’s chief executive, said in a statement.
“The Abraaj Group is that partner of choice and we look forward to working closely with their team to extend our market leadership position across the continent.”
The company is set to face more competition with the entry and expansion of other lifestyle restaurants, especially in Nairobi that hosts the majority of Kenya’s rich and middle class consumers.
Growth in the industry has sparked acquisitions, with the Java deal coinciding with Sasini’s #ticke:SASN sale of its Sasini Coffee House for Sh70 million.
The Nairobi Securities Exchange-listed firm recently initiated the sale of its entire 60 per cent stake in the company that runs four restaurants on Nairobi’s Loita Street, Ralph Bunche Road, Muthangari Road and Mombasa Road.