Java back on sale as UK equity fund eyes billionsWednesday January 11 2023
Restaurant chain Java House has been put on sale by UK-based private equity fund Actis for an undisclosed value expected to run into billions of shillings, three years after it was acquired from Dubai-based Abraaj Group.
Sources familiar with the transaction said Actis is looking for a buyer for its 100 percent stake in Java House in what could be another change of ownership at Kenya’s biggest coffee chain.
The search for a buyer comes months after Actis inked a deal to buy hotel properties in Kenya and Tanzania and has been on since last year, multiple sources said.
READ: Java House appoints first Kenyan CEO
“They are looking to sell Java House by end of this year. Actis are the ones looking for a buyer,” a highly placed source told the Business Daily.
“As for the value of the transaction, the shareholders know the price they want to sell.”
John Thompson, a communications director at Actis in London, declined to comment on the financial details of the transaction, terming it market speculation.
Another source said the deal is valued at $40 million (Sh4.9 billion) and that three of the potential buyers had been dropped on grounds that their asking price was below market rates.
The sale of Java at a time the eatery is experiencing intense competition from the aggressive expansion of ArtCaffe and other homegrown restaurants is expected to cement Kenya’s reputation as a high-return market that offers exit routes for PE funds and development finance institutions (DFIs).
Most PE funds and DFIs have exited by selling to similar funds, indicating a strong demand from the institutional investors that pool funds from wealthy families, pension funds and governments.
Various PE funds have made double- to triple-digit returns after investing in large and medium-sized firms for five to seven years.
The high returns cut across industries, including private education, banking, healthcare, insurance and manufacturing.
The restaurant chain, which has been on a fast-paced growth since its inception in 1999 plans to grow outlet numbers in Kenya and expand beyond East Africa.
Besides Kenya, it has operations in Uganda and Rwanda and at one point targeted a presence in Dar es Salaam, Lagos, Accra and Lusaka.
In Kenya, Java competes with global brands including KFC and Burger King, as well as foreign-owned local chains such as ArtCaffe, which has also been on an expansion drive funded by PE investors.
Sandwich chain Subway, ice cream seller Cold Stone Creamery, Japanese firm Toridoll and Domino’s Pizza have also opened more stores in Kenya.
These global players are turning to emerging markets such as Africa for growth, attracted by rising disposable household incomes, fast economic growth, and a young population, according to a study by McKinsey.
Java is the biggest restaurant chain in the region with 72 outlets, followed by Chicken Inn (72), Artcaffe (35), KFC (33), and Burger King (5) among others. Other players targeting the same clientele include Subway and Big Square among others.
Besides Kukito, Java House Group runs Java restaurants, Planet Yogurt (PY), and 360 Degrees Pizza.
The restaurant chain which was bought in 2017 by private equity firm Abraaj is headed by Priscilla Gathungu who is its first Kenyan chief executive who last November replaced Derrick Van Houten who took over in March 2021.
READ: Java to open five new outlets by October as rivalry grows
The reasons for Mr Van Houten's departure who joined the chain from KFC after barely two years are still not clear but the latest changes signal a revolving door at Java’s C-suite.
Ms Gathungu is the third chief executive in under four years of Java House.
Washington-based Emerging Capital Partners (ECP), which owned 90 percent of Java in 2017, sold the entire stake to Abraaj as part of a takeover plan that has also forced the chain’s founder and chairman Kevin Ashley to part with his 10 percent stake that had been valued at Sh1.3 billion in a deal that was estimated at Sh13 billion.
In 2018, Africa-focused ECP acquired a majority stake in ArtCaffe Group.
ECP had earlier sold Java House to Abraaj, underlining private equity investor interest in East Africa.
The Competition Authority of Kenya then approved the acquisition of indirect control of Java’s owner — Abraaj Holdings — by Actis.
The notice did not specify the value of Actis’ acquisition of Abraaj’s Kenyan assets which also includes a 10 percent stake in Brookside Dairy.
Actis also owns the high-end Garden City mall and is putting up Grade A offices on a 23-acre plot in Dandora in Nairobi.