The family of Peter Mukuha Kago, the founder of Naivas, is set to sell an extra 11 percent stake in the company for an estimated $41.7 million (Sh5.8 billion) in a deal that will see foreign investors take controlling ownership of Kenya’s largest supermarket chain.
This will be the third time the Mukuhas will be selling their shares in Naivas, which has become an investors’ magnet on the back of profitability and market share growth.
The latest proposed deal has been disclosed by Mauritian conglomerate IBL Group, which is part of a consortium that bought a combined 40 percent stake in Naivas last year for $151.97 million (Sh21.4 billion at current exchange rates).
The deal, if concluded, means that Kenya’s three largest supermarkets will now be controlled by foreigners.
“The … company will subscribe to additional shares in Mambo Retail Ltd,” IBL said in a disclosure to its investors.
“The proceeds of the subscription of shares will be utilised by Mambo Retail Ltd to acquire an additional 11 percent in Naivas International … the leading retail chain in Kenya which will result in Mambo Retail Ltd holding 51 percent of the shares in Naivas International Ltd.”
Mambo Retail is the investment vehicle through which IBL, French fund Proparco and German fund DEG currently hold a 40 percent stake in Naivas International, which in turn fully owns the operating subsidiary Naivas Limited.
The proposed transaction will see the Mukuhas’ interest in the supermarket chain drop from the current 60 percent to 49 percent, making them minority shareholders.
The family’s investment vehicle –Gakiwawa Family Investments— has been offloading its shares in recent years in multi-billion shilling deals bucking the trend of local founders of other retail giants such as Nakumatt Holdings and Tuskys holding onto their stakes only to see their fortunes evaporate with the collapse of those ventures.
The Mukuhas used to own 100 percent of Naivas until 2020 when they sold a 31.5 percent stake for Sh6 billion to a consortium comprising the International Finance Corporation (IFC), DEG and private equity firms Amethis and MCB Equity Fund.
The money was spent on fuelling the retailer’s growth across the country, with the ownership of the Mukuhas falling to 68.5 percent but becoming more valuable as the supermarket operator witnessed a profitable expansion.
In June last year, the IBL-led group reached a deal to buy the 31.5 percent stake held by IFC and its co-investors at a cost of $119.68 million (Sh16.8 billion).
The group also acquired an additional 8.5 percent stake from the Mukuhas for $32.29 million (Sh4.5 billion), marking the first time the family cashed out of its investment through sale of shares.
The family stands to receive at least Sh5.8 billion from the new deal, based on last year’s transaction which valued the retailer at $379.9 million (Sh53.5 billion at current exchange rates).
This makes it one of the most valuable privately held companies in Kenya, with its valuation exceeding the market capitalisation of publicly traded BAT Kenya (Sh44 billion) and Stanbic Holdings (Sh46.6 billion).
It was not immediately clear whether IBL’s partners DEG and Proparco will also provide new capital that will be used to buy the extra shares from the Mukuhas.
IBL currently holds an effective stake of 26.32 percent in Naivas through its majority ownership of 65.8 percent in Mambo Retail.
It is followed by Proparco and DEG whose indirect interest in the retailer stands at 8.29 percent and 5.39 percent respectively.
DEG reinvested in Naivas alongside IBL immediately after being bought out along with the earlier investors –IFC and the PE funds.
The deal underlines IBL’s confidence about Naivas’ future prospects, with the retailer being the most important among a string of investments it has made in Kenya, including buyouts of a solar firm (Equator Energy) and a pharmaceutical distributor (Harley’s).
Naivas grew its profit to Sh2 billion in the nine months ended March, according to disclosures by IBL.
Previous disclosures showed that the retailer reported sales of Sh65.1 billion in the year ended June 2021 when its net profit stood at Sh2 billion, representing a net margin of 3.18 percent.
This was an improvement from the prior year when it made a net income of Sh1 billion on sales of Sh54 billion, amounting to a net margin of Sh1.9 percent.
Established in 1990, Naivas has grown to become the largest supermarket chain in the country with more than 84 stores and employing 8,000 people as of June 2022.
Its growth came amid stumbles by its rivals such as Nakumatt Holdings, Uchumi Supermarkets and Tuskys, which went bankrupt due to large debt or mismanagement.
Other recent challengers such as Massmart and Shoprite of South Africa closed their operations after failing to gain traction in the competitive formal retail market.
Carrefour and Quickmart are among the supermarket chains that have continued to expand alongside the dominant Naivas.