Two American private equity funds are among a group of institutional investors in the race to acquire Kenyan coffee chain Java House in a transaction estimated to be worth $100 million (Sh10 billion).
Sources familiar with the deal said Washington-based Carlyle Group, which has $169 billion under its management and San Francisco-based TPG, a $74 billion fund, are among the firms seeking to acquire Java – the coffee outlet that has recorded fast growth since its inception in 1999.
Java is currently owned 90 per cent by Washington-based Emerging Capital Partners (ECP), which bought the stake in 2012 from the coffee chain’s founders, Kevin Ashley and John Wagner, who are Americans.
It was not immediately clear whether the intended acquisition is a complete takeover or a partial one precipitated by ECP’s exit in line with the medium-term investment plans of PE funds.
If it goes through, this will be Kenya’s largest restaurant industry transaction that should leave ECP with a handsome return on its investment.
The PE fund did not disclose the amount it spent to acquire the Java stake, which it insisted did not go to the founders but was used to fund the company’s growth.
The PE world has, however, put the amount at tens of millions of dollars.
The fact that the founders did not take out cash when ECP came on board indicates that they are likely to cash in this time round alongside the PE fund as a new investor buys the company.
Java’s sale will 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 DFIs have exited by selling to similar funds, indicating strong demand from institutional investors that pool funds from wealthy individuals, pension funds and governments.
Various PE funds have made double to triple digit returns after investing in large and medium-sized Kenyan firms for five to seven years.
The high returns have been earned across a broad spectrum of industries spanning private education, banking, healthcare, insurance and manufacturing.
Mr Ashley, who declined to comment on this story, has previously said Java’s annual revenues grossed Sh4 billion.
From a single shop offering tea and coffee, the company has expanded to more than 50 outlets in Kampala, Nairobi and other Kenyan towns such as Mombasa with an expanded menu featuring international cuisine.
It recently launched two new brands – Planet Yogurt (a self-serve frozen yoghurt chain) and 360 Degrees (a pizza restaurant).
Mr Ashley said the opening of new Java shops – estimated to cost up to Sh70 million— has been funded by internally generated cash, signalling the company’s profitability and strong cash flows.
That growth has been aided by keeping the chain at the vanguard of casual dining targeting the growing middle class, who pay hundreds of shillings for breakfast, lunch or dinner.
Kenya’s per capita national income increased 48.5 per cent to Sh139,972 in 2015 compared to Sh94,235 in 2011, according to the Economic Survey 2016.
The gross national disposable income –amassed largely by the rich and middle class— rose comparatively faster at 63.8 per cent over the same period to reach Sh6.5 trillion.
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 burgers.
The new owners of Java are expected to further expand the company’s footprint locally and in the region, with Mr Ashley saying in an earlier interview that the firm was eyeing Pan African growth that would take it to countries like Zambia and Ghana.
The company is set to face more competition with the entry and expansion of other similar 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 sale of its Sasini Coffee House for Sh70 million.
The Nairobi Securities Exchange-listed firm says it will sell its entire 60 per cent stake in the company that runs four restaurants along Nairobi’s Loita Street, Ralph Bunche Road, Muthangari Road and Mombasa Road.
Sasini started the restaurant business in September 2007 with a Sh20.9 million investment.
Sasini Coffee House offers a diverse menu including tea, coffee, snacks, desserts, lamb chops and burgers.
The subsidiary had net assets of Sh36.9 million in the year ended September when it recorded a net loss of Sh7.4 million, reversing a profit of Sh958,051 the year before. Its sales declined 14 per cent to Sh105.6 million in the review period.
Besides diversification, the subsidiary was also set up to boost local consumption of Sasini’s tea and coffee brands.