Kenyan firms prefer buyouts by big companies, says study
Some of the buyouts in the Kenyan markets include that of Paul Kinuthia’s Interconsumer Products by French-listed cosmetic giant L’Oreal last year at an estimated Sh1 billion. FILE
What you need to know:
Private equity managers cited competition from big corporates as their greatest challenge to deal closures.
Unwillingness to handover management control was a key deterrent to private equity deals.
Private companies are viewed to be largely driven by profits and are aggressive to ensure they squeeze the maximum value from businesses before they exit, putting pressure on the management to offer financial returns.
Kenyan companies prefer to be bought out by cash-rich corporates rather than cede shareholding to private equity funds that would pressure for returns.
Private equity managers cited competition from big corporates as their greatest challenge to deal closures in a recent research dubbed Deal Drivers Africa 2013.
Four in five respondents cited competition from big companies as one of the key obstacles facing private equity investors, followed by regulatory hurdles (74 per cent).
“Corporates are looking to acquire small and medium-sized businesses and often target service support companies in order to reduce financial and operational costs,” a principle investment officer at a Kenya-based private equity firm says in the report.
Some of the buyouts in the Kenyan markets include that of Paul Kinuthia’s Interconsumer Products by French-listed cosmetic giant L’Oreal last year at an estimated Sh1 billion.
Other deals conducted last year include the purchase of motor dealer CMC Motors by Dubai based Al-Futtaim and that of AccessKenya by Dimension Data of South Africa. Listed miller Unga Group is in talks to buy Ennsvalley Bakery in a share swap estimated at Sh446 million.
Deals that were in the pipeline but fell through include South African manufacturer Tiger Brands buyout of Rafiki Mills and Magic Oven Bakeries and that of KenolKobil by Puma.
“If you are a good company you have people knocking on their doors. Most companies are looking for partners who add a lot of value to their business and sometimes the financial provider may not have this,” said Eric Musau, an analyst with Standard Investment Bank.
Private companies are viewed to be largely driven by profits and are aggressive to ensure they squeeze the maximum value from businesses before they exit, putting pressure on the management to offer financial returns.
“Both local and international firms are targeting the region mainly to generate profits and increase their shareholder value,” reads the report.
The research also found that unwillingness to handover management control was a key deterrent to private equity deals.
Analysts, however, believe that private equity funds also undervalue the companies, resulting in rejections.
“Sometimes they are very pessimistic in their analysis so they miss the big picture,” said ABC Capital corporate finance and advisory manager Johnson Nderi.
Transactions by PE funds include Fusion Capital Sh245 million acquisition of a 45 per cent stake in GAL Baking Services, and the entry of German based DEG’s in reinsurer Zep-Re. French based Amethis Capital and DEG also bought into mid-sized lender Chase Bank.
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