French sovereign wealth fund Proparco has acquired a $31.5 million (Sh3.7 billion) stake in supermarket chain Naivas as part of a consortium that will take a combined 40 percent ownership in the retailer.
Naivas had earlier announced that Proparco, Mauritian conglomerate IBL Group and German sovereign wealth fund DEG were taking a minority interest in the company without disclosing the details of the proposed transaction including the stake to be purchased.
They are acquiring stakes owned by a cluster of investors including World Bank’s International Finance Corporation (IFC), MCB Equity Fund, Amethis, and German sovereign wealth fund DEG, which acquired the shares in the retailed for Sh6 billion in April 2020.
The deal underlines the worth of Naivas, which remains a star attraction to private equity funds in Kenya’s retail sector where the collapse of one of the major players in recent years has left a gap.
“Proparco is pleased to announce its partnership with IBL Group, the largest conglomerate of Mauritius [and] DEG … to jointly acquire a 40 percent interest in Naivas International, which owns 100 percent of the shares of Naivas Limited,” the French fund in a statement.
Proparco said its capital contribution will be $31.5 million (Sh3.7 billion).
It is not clear whether the 40 percent stake will be split equally among the three institutional investors.
The parties have indicated that the deal is much larger than the Sh6 billion that IFC, Amethis and DEG paid to acquire the 30 percent stake in Naivas.
DEG is simultaneously exiting its initial investment in Naivas and re-entering the retailer’s shareholder list as part of the new consortium.
It is not clear whether the IFC consortium had bought an additional 10 percent stake in the retailer or if the founders –the family of the late businessman Peter Mukuha Kago— are selling additional shares alongside the institutional investors.
If Proparco and its partners are investing equal amounts, it means the 40 percent stake is being acquired at a cost of Sh11.1 billion, valuing Naivas at Sh27.8 billion.
The entry of the IFC consortium valued Naivas at Sh20 billion in 2020 and the retailer’s worth has increased amidst its aggressive expansion across the country since then.
Unlike the earlier transaction in which Naivas received growth capital, the proposed deal will see the IFC consortium cash out its two-year investment.
“We have adequate capital to fund our future expansion,” said Naivas in reply to Business Daily inquiries.
IBL earlier said this is the highest-value transaction it has ever undertaken.
“The investment in Naivas International [the owner of the retail chain] is the biggest investment in IBL’s history,” the multinational said in a statement.
The exit by the IFC consortium represents an unusually short investment period for institutional investors that typically hold companies for seven years or more.
IBL says the proposed transaction will give it a platform for further investments in East Africa, noting that Naivas has scaled up its operations substantially to entrench its position as the biggest supermarket operator in the country.
“This family business created in 1990 is an example of a success story that has continued to grow despite the pandemic thanks to its strong business model,” Arnaud Lagesse, IBL’s chief executive, said in a statement.
“With 84 outlets in 20 cities and towns across Kenya, it has put modern grocery retail within everyone’s reach. Naivas also contributes to the Kenyan economy, notably by employing over 8,000 people.”
Mr Lagesse added that IBL has expertise in the retail sector, running the Winners supermarket chain in Mauritius.
Naivas has grown to become one of Kenya’s largest companies by sales and employment.
The retailer is set to close the financial year ending this month with a gross turnover of $860 million (Sh101 billion) with an ambition of raising it to $1 billion (Sh117 billion) in the next financial year.
When the IFC group bought into the retailer, it had 60 stores. The company used cash that was raised from the share sale to open more branches including taking over premises vacated by collapsed or struggling rivals Nakumatt Holdings and Tusker Mattresses Limited (the owner of Tuskys brand).
Naivas’ closest rival in terms of branch network is Quick Mart which had 51 stores as of April. Quick Mart has also been expanding aggressively after receiving an investment from Africa-focused Adenia Partners.
Carrefour Kenya, which benefits from relatively higher spending per shopper in wealthy suburbs, has an estimated 16 branches from which it posted substantial revenue of Sh33 billion last year.
“This is an exciting partnership by our shareholders that will drive us to the next phase of growth. We appreciate the immense knowledge and capacity in the retail industry that IBL brings to the table,” David Kimani, the managing director of Naivas, said in a statement.
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Proparco said Naivas will continue with its expansion in the modern retail market across various formats, responding to consumers’ needs and increasing demand for food quality and safety.
For IBL, the acquisition of a minority stake in Naivas marks the expansion of its conglomerate business model that spans 18 countries.
The company, which is listed on the Mauritius Stock Exchange, employs 25,000 people and has operations in agriculture, energy, distribution, logistics, engineering, financial services, and hospitality among others.