Companies

Indian firm, Kenafric buy struggling Britania biscuits for Sh1 billion

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Catalyst CEO Paul Kavuma. PHOTO | SALATON NJAU | NMG

Kenya’s Kenafric Industries has teamed up with an Indian food giant to acquire the distressed Biscuit maker Britania in a deal estimated at Sh1 billion.

Kenafric and India’s Britannia Industries, which has no relations with the troubled Kenyan firm, made the acquisition through a controlled auction that attracted eight bidders.

The auction of the Kenyan biscuit firm, which was renamed Britania Foods Ltd, comes more than a year after facing auction having been placed under administration last year for defaulting on loans of more than Sh1.3 billion provided by DTB Group and other creditors.

The deal marks a big blow to private equity firm Catalyst, which bought Britania Foods Ltd for Sh1.2 billion in 2016 and alleged in court that it overpaid for the firm after its books were cooked.

A transaction advisor who participated in the deal and who spoke to the Business Daily on condition of anonymity said the deal was closed in August and was worth between Sh800 million and Sh1 billion.

“The bid from Kenafric which came in with Britannia of India was the most competitive. We had eight bidders, two of which were foreign,” said the transaction advisor.

“The transaction was completed in August and was on behalf of the [DTB] bank. Catalyst did not feature anywhere in this transaction.”

Catalyst said it undertook a forensic investigation into the business and discovered that the previous owners trading as Jambo Biscuits misrepresented the financial health of the business, which the PE firm valued at Sh126 million.

It reckoned that Britania Foods had been reduced to a shell, hurting the private equity firm that has built a brand investing in high-growth mid-sized companies across Eastern Africa.

Under the latest buyout deal, the listed Indian confectionary company first bought a 51 percent stake in Kenafric Biscuits Ltd, the joint venture, for Sh138.7 million.

It used the joint venture together with Kenafric Industries—popular for lollipops and chewing gum under the Fresh brand—to bid for Britania Foods.

The Kenyan Britania, which started out as a small bakery, has been in operation for 34 years, during which time it grew into one of the country’s biggest local brands.

The new owners will reopen Britania Foods, which froze operations in October 2020 under the mountain of debt, today and use it as a launchpad for selling biscuits in Eastern and Central Africa.

Britannia Industries is a leading biscuit maker in India with sales of nearly 139.45 billion rupees (Sh206.45 billion) for the year ended March and net income of 14.03 billion rupees (about Sh20.76 billion).

The publicly traded firm executed the twin deals through its wholly-owned arm, Britannia and Associates (Dubai) Pvt Co Ltd (BADCO), according to its regulatory filing to the National Stock Exchange of India.

The acquisition of Britania Foods ends a nine-month search for a buyer after the firm was put on sale in early January.

The sale was sanctioned after it slipped into administration last year for defaulting on the bank loans.

Kenafric said Tuesday the entire deal is worth $20 million (Sh2.41 billion), signalling they injected additional cash to revamp the factory.

“Most of us have grown up since we were children knowing the Britania brand. So we are also carrying the Britania name with us, and that is why we bought the brand. You will see the Britania brand in the market but manufactured by Kenafric Biscuits Ltd,” said Lorna Solopian, the head of Legal and Compliance at Kenafric Group.

In the insolvency suit, the biscuit maker attributed its downfall to the collapse of retail giants Nakumatt and Tuskys, which reportedly went under while owing it millions of shillings.

It also blamed the effects of Covid-19 on its biggest client base - schools and hotels – which suffered extended closures to contain the pandemic.

Britania was among the leading biscuit brands in the country but has been hit hard by reduced demand from its main distribution system of schools, hotels, restaurants and supermarkets.

The firm, which started out as a small bakery, has been in operation for 34 years, during which time it grew into one of Kenya’s biggest local brands.

Its founder Nitin Dawda's family sold the company to Kenyan-owned private equity firm Catalyst Principal Partners in 2016.

In March, Catalyst said the alleged cooking of books had cost it nearly Sh1 billion from the deal it closed in 2016, derailing the turnaround of the company which the private equity firm argues was valued at Sh126 million when closing the takeover.

The biscuit firm is accused of inflating reported revenues, revenue growth and gross margins as well payment of taxes.

“This was orchestrated through the falsification of financial statements and other crucial documents, which indicated that the true value of the business was Sh1.2 billion as opposed to Sh126 million, and thus the said respondents acted in breach of the agreement,” Catalyst chief executive Paul Kavuma said in court documents, without giving further details.

The private equity firm is now fighting in the Court of Appeal to retain more than Sh314 million that had been placed in an escrow account to take care of unforeseen risks after the buyout deal.

Before the acquisition, the parties agreed that part of the purchase price, Sh281.5 million, be retained and deposited in an interest-earning account.It was deposited in the accounts of the law firm of Harit Sheth Advocates and had earned interest to Sh314 million by last December.

Catalyst has laid claim to the amount of money with the Dawda’s family, which found the biscuit maker, also fighting for the millions