Entrepreneurs pocket billions in sale of companies
Mr Bharat Thakrar: His stake in Scangroup will drop further after the WPP deal. FILE
What you need to know:
Some entrepreneurs are selling to harvest the fruits of long-term investment they made decades ago while others are being squeezed out of or exiting troubled businesses.
The sale offers have attracted foreign investors seeking an entry into the regional market through acquisitions that are deemed to be a faster way of penetrating the market than greenfield ventures.
Analysts say the acquisitions are largely positive, helping companies to access more capital and technical input needed to steer the firms to greater heights.
Kenyan entrepreneurs are selling large segments of their stakes in local companies to foreigners in multi-billion shilling deals that are changing the mix of shareholder rolls.
An analysis of concluded and pending deals shows that some of the billionaire entrepreneurs are selling to harvest the fruits of long-term investment they made decades ago while others are being squeezed out of or exiting troubled businesses.
The sale offers have attracted investors from Europe, Africa, and the Middle East seeking an entry into the regional market through acquisitions that are deemed to be a faster way of penetrating the market than greenfield ventures.
The list of companies where foreign investors have acquired majority stakes in the past one year include Fina Bank, Mercantile Insurance, Interconsumer Products, Kenya Data Networks (KDN) and Swift Global.
Analysts say that the acquisitions are largely positive, helping companies to access more capital and technical input needed to steer the firms to greater heights.
“The deals are a reflection of the dynamism and confidence in the Kenyan economy,” said Robert Bunyi, an analyst at Mavuno Capital.
“Entry of multinationals will raise competition in the local market and this is good for consumers.”
An increase in local mergers and acquisitions presents founders of businesses with a lucrative and easy exit strategy, a move that is likely to encourage more local start-ups.
The founder shareholder of Scangroup, Mr Bharat Thakrar, will see his stake in the marketing services firm drop further as the company prepares to cede a controlling stake to global communications firm WPP.
The London-listed firm has offered to raise its stake in Scangroup to 50.1 per cent from the current 33.6 per cent through a mix of cash injections and share swaps that will dilute the shareholding of existing owners.
Mr Bharat, who holds an 18.1 per cent stake in the company, declined to disclose what his exact shareholding will be after the proposed transaction.
His stake dropped to 28.5 per cent when Scangroup went public in 2006 and further declined to 20.6 per cent in 2008 when the firm issued new shares equivalent to 27.5 per cent stake to accommodate WPP’s Sh1.3 billion investment.
“This investment is a further step towards WPP’s declared goal of developing its businesses in the fast growing economies of Africa,” WPP said in a statement.
Mr Bharat has benefitted from Scangroup’s growth in the interim years, with his stake currently worth Sh3.8 billion and making him one of the wealthiest individual investors at the Nairobi Securities Exchange.
The Somen family is another group of founder investors facing a buyout as their Internet firm AsccessKenya is being taken over by South Africa’s Dimension Data Plc in a Sh3 billion deal.
Mr Michael Somen and his sons David and Jonathan — the CEO of AccessKenya — will earn Sh984.5 million for their combined 70.32 million shares in the firm which is set to be acquired 100 per cent by Dimension Data at Sh14 per share.
The local ICT sector has become a major target of acquisitions, with billionaire investor Naushad Merali selling significant stakes in Swift Global and KDN earlier in the year for undisclosed sums.
Mr Merali ceded his entire 49 per cent stake in Internet service provider Swift Global and his 19.2 per cent equity in fibre infrastructure firm KDN to Mauritius-based Liquid Telecom. Mr Merali retains a minority interest in KDN estimated at about 20 per cent.
While most of the acquirers are companies are in the same industry as their local targets, some fast-growing firms have attracted international private equity firms seeking to diversify their portfolio away from Western economies characterised by weak growth.
ADC has committed to invest a further $3 million (Sh261 million) in Resolution in the short term, a move that will raise its stake from the current 38.7 per cent to 62.1 per cent.
Mr Nduati - who held a 52 per cent stake in Resolution in 2010 - has seen his ownership decline to 20 per cent mainly as a result of ADC’s accumulation of the insurer’s stock over the years.
He told Business Daily in a recent interview that he will further reduce his interest in Resolution to about 18 per cent.
The exit of local investors has in some cases been prompted by crises like in the case of CMC Holdings whose majority shareholders – with a 62.9 per cent stake - are seeking to sell their interests to one of several prospective buyers.
The auto dealer has suffered bitter boardroom wars and reduced profitability, causing major shareholders like former Attorney-General Charles Njonjo and Peter Muthoka to seek potential acquirers.
Executives from a Dubai-based conglomerate recently visited Nairobi to conduct due diligence on the publicly traded company whose acquisition is likely to see it go private.
Other companies whose business have attracted foreign investor interest include fashion house Deacons whose investors include the family of retired Mwai President Kibaki.
South Africa’s Woolworths recently formed a company in which it took a 51 per cent per cent stake and offered the remaining 49 per cent to Deacons, effectively ending the previous franchise arrangement where Deacons did not have to share earnings from the clothing brand.
Mr Price, another franchise owner, is planning a similar joint venture with Deaons that could take away more than half of annual revenues the local firm used to earn from the two franchises.
Conclusion of the pending deals would see local investors earn billions of shillings in an economy where business valuations have been termed as relatively expensive compared to other East African markets.
Last month, Fina Bank founder Dhanu Chandaria signed a deal with Nigeria’s Guaranty Trust Bank to cede his 70 per cent stake in the mid-sized lender for Sh8.6 billion. It is not clear whether the transaction is in cash or share swap with the Nigerian bank.
Mr Chandaria’s also owns Kenpoly, one of the largest household plastics company in the country.
