Category Archives: M&A

SBM buys Fidelity Bank for $1

Yesterday there was an announcement that the SBM Group of Mauritius would acquire Fidelity Bank for the sum of Kshs 100 (~$1) and inject capital worth Kshs 1.45 billion into the bank afterwards.

This has also been confirmed and welcomed by the Central Bank of Kenya which notes that SBM Group is the second largest company listed on the Stock Exchange of Mauritius. As at September 30, 2016, it had an asset base of about Ksh.417 billion (US$4.2 billion).

The 29th largest bank at the beginning of the year with Kshs 15 billion in assets and a pre tax loss of Kshs 4 million. It had Kshs. 10.4 billion in deposits, and Kshs. 9.6 billion in loans and 14 branches. Fidelity has had a bumpy year as it was briefly linked with legal cases after the shutdown of Imperial Bank. Earlier in the year it announced talks with Duet Capital to invest Kshs 1.9 of capital in the bank as CBK also moved to quash social media rumors that the bank was being placed under receivership. This all now seems in the past with this buyout of the shareholders of the bank at no cost.

$1 = Kshs 101.

Farewell Naked Pizza – Part II

About two weeks ago, we got the unexpected news that the Naked Pizza chain was closing shop. I sought out Ritesh, the owner, and face, of the Naked Pizza Kenya franchise to ask about what happened.

We met for coffee at one Artcaffé, and he spoke about his background as a career investment banker who had lived an “up in the air” lifestyle (see the George Clooney movie) – at Credit Suisse and HSBC. He worked in Africa, Europe, Middle East and the US.

When he stepped away from banking, he started advising a few companies that were  trying to restructure their operations.  One of them was in the UK health sector. In the process, he bid alongside other investors and was the top bidder. And just a few months after he restructured and re-launched it, another health company bought him out.

When he first stated scouting the food business, no pizza brands were interested in Africa. He convinced Naked Pizza executives to meet him in Dubai when they toured their operation there. He then flew them to Nairobi and won them over and they signed a deal with him for the Kenya franchise.

 He then trained for a few weeks at Naked Pizza in Dubai, including in one of their pizza stores. He returned to Kenya and set out to hire a team, for which he paid above market rates for his staff. Some people working at other Nairobi pizza chains also applied, but after interviewing them, he shied away from them, as he felt they had in-built attitudes and practices. He preferred newbies to the food business.

Ragin Cajun at Naked Pizza Kenya

Setting up took longer. They had to import equipment and build a supply chain with companies who would deliver quality cheese, meats, grains, and vegetables to be ever fresh.

The (Westlands) store location was not ideal for some (like me), but it worked – as 85-90% of their pizza business was deliveries. And being in that building was about 1/3 of the cost of setting up in a mall.

They had a soft launch, with a focus on product, customer, and delivery. i.e. to get fast deliveries of great pizza to happy customers.

In the early days they built their own neighbourhood mapping system to ensure fast deliveries. He also got on the bike and did deliveries with the riders, as the teams noted unique Nairobi details (“e.g. the blue gate on Parklands Road, after three bumps”), which they then added into the ordering system to ensure faster deliveries in the future.

On some days when orders came in, and all the delivery motorbikes were out, he’d sometimes grab a pizza and do the delivery with his car. They started with deliveries near the store, and slowly increased i.e. from a store radius of 5 minutes, then 10, then accepting orders to neighbourhoods with 15 minutes radius of the store. This was a challenge as people from farther would call and ask for pizza, and they would have to decline orders, as they were outside the radius.

They had opened shortly before the 2013 Kenya election, and on election day,  they became an object of curiosity with their commitment to remain open and deliver pizza on election day.  They also ensured that all their staff got to vote, by having them take different work shifts.

International media came to cover the pizzeria that vowed it would be open to serve customers, despite the wide international fear that Kenya’s election would again be violent. The Kenya election may also have been a turning point for him in ways that he did not realise till much later. The election news coverage was noticed in the USA – by some pizza managers who did not associate pizza with Africa, but could now see Ritesh on CNN.

They never had to market the chain. They got a lot of mileage from a fun twitter account that he ran by himself, before he handed it over to a keen staff member. They would tweet on customers, deliveries, and suppliers, and also  when rival pizza owners would come to eat at Naked Pizza and see what was drawing their customers. He resisted doing promotions like the buy one get one free pizza that captivates many in Nairobi.

They had loyal customers who kept ordering more pizza. Their were also some awkward moments with the customers – like some who ordered pizza, while they were on a date somewhere, but the pizza was taken to their house (which was listed in Naked Pizza system) – and that was  a surprise! Or others who ordered the smallest food item to go along with a large quantity of reasonably priced alcohol to be delivered by Naked Pizza just before 11PM.

Ritesh couldn’t talk about numbers paid for the exit (Pizza Hut bought the restaurant operations of Naked Pizza). One of the things he negotiated for in the deal, was for the buyers’ company to take on all his Naked Pizza staff to work in their different companies.

But the departure was not about the difficulty of the business, which was a success, but one full of battles that were not necessary. He had a whole wall of licenses (as does every Kenyan business, that any government inspector could walk in and ask to see any of a dozen different licenses at any given time), equipment that got stuck at the port with demands for bribes, they did well on tenders that were later canceled and re-advertised, there were phone calls, arrest and harassment of delivery motorcycle riders etc.

The decision to exit was not instant. Soon after he signed on for the franchise, an investor power shift took places at Naked Pizza headquarters that ejected the key partners who he had negotiated with. This left him without crucial mentorship and support that he needed. He got some help in Nairobi – where  some food executives such as Kevin Ashley (Java) and Gavin Bell (Kengeles), welcomed him, and advised him. But others, especially in the pizza sector were not as welcoming.

As he’d grown the business, he’d scaled back the ambitions he had – his initial plan was for 15 stores, then 10, and then 5. Eventually they opened three stores in three years. Pizza’s need customers, and there are some industry numbers that are true no matter what country you are in the world e.g. one pizza store needs to serve 50,000 households in the area.  Also a new store opening nearby can drop the sales of a pizza restaurant by  30–40% instantly, which they could expect and could build back these numbers over the next few months.

But the more pizza stores that are in an area, the more buyers everyone would have to find. And he really didn’t see the market, that other global brands were now chasing. Nairobi now had Pizza Hut and Domino’s Pizza. The new entrants, inspired by “Africa Rising” statistics (and his CNN and CNBC stories!) were ambitious and opened stores at a rapid clip, and had plans to open many more in locations that did not make apparent sense to him. He own findings did not show that there was a prosperous middle class, ready and able, to buy quality pizza in Nairobi.

So it was time to move on.

M&A Moment: June 2016

Various deals in the last few weeks and months in East Africa

Banking:

  • Barclays sold 12% of Barclays Africa for $873 million, reducing its’ stake to 50.1%. In Kenya, the Central bank said their feel like `flower girls’ in the Barclays exit for which Barclays says it has attracted ‘over 100’ offers.
  • At Chase Bank suitors are lining up to buy the bank that’s now out of receivership. KCB and QNB of Qatar are tipped as leaders, but there are as are a few other mid-size banks said to be interested.
  • Cooperative Bank plans to do a joint ventures to expand into Ethiopia and Rwanda following in the model that was succesful in South Sudan. This will be in partnerships with co-operative societies in those countries.
  • Credit Bank is seeking an additional Kshs 5.4 billion from an investment group. The bank is wooing Fountain Enterprises Programme (FEP) to buy to 70% of the bank via a private offer priced at Kshs 180 apiece and limited to members of the chama (investment club) which has a large following in the UK and US. (via Biz Daily)
  • CBK has rejects takeover bids by 7 suitors of collapsed Dubai Bank, as the proposed investors have not provided bona fides.
  • Equity Bank is completing the acquisition of 79% of Congo (DRC), the 7th largest bank – ProCredit Bank for w Africa. It has 170,000 customers and only about 4% of their 85 million citizens  have bank accounts.
  • The Mwalimu SACCO/Equatorial Commercial Bank combination is going to be called Spire Bank (via Mwirigi)
  • Fidelity Bank is set to receive an investment from Duet Private Equity who will pay Kshs 1.9 billion to buy into the bank (no shareholders are exiting).
  • I&M is set to acquire 100% of Giro bank in a deal in which the owners of Giro will get 5% of I&M. Also CDC is set to become the fourth largest owner of I&M after it agreed to fully buy out DEG and Proparco, who hold an 11%  stake. The Competition Authority of Kenya has authorized the acquisition  65% of Burbidge Capital by I&M.
  • Jamii Bora is looking to raise an additional Kshs 3.8 billion, comprising 800 million of debt and Kshs 3 billion from a strategic partner/investor.
  • Kenya Government: The National Bank of Kenya (NBK), Consolidated Bank and the Development Bank of Kenya will be consolidated into one or two institutions to make them stronger in coming months,  to make them stronger, Treasury secretary Henry Rotich has said.
  • The Kenya government also plans to create Biashara Bank form merging the Youth, Women’s & Uwezo enterprise funds) to cater for start-ups
  • Tanzania’s Bank M is set to acquire Kenya’s Oriental Commercial Bank, and be listed at the NSE. Bank M, a recent winner of best corporate bank in Tanzania has set up a holding company in Kenya (via Kenyanwalstreet)

Beauty & Pharma

  • The Competition Authority authorized the acquisition of 100% of Canon Chemicals by Godrej East Africa Holdings
  • Earlier the Competition Authority cleared the acquisition of the brands of Sigoria t/a Beuty Plus East Africa by Flame Tree Africa – this was part of the acquisition of the ‘Suzie Beauty’ brand and inventories for Kshs  45 million.

Food & Beverage

  • Centum made an offer to buy shares from some minority Almasi bottling shareholders.
  • The Competition Authority authorized the acquisition of Sab Miller by Anheuser-Busch Inbev.
  • Naked Pizza Kenya has been bought out by Pizza Hut (more here)
  • Coca-Cola Company  announced a new streamlined international structure. The company will form a Europe, Middle East and Africa (EMEA) Group, consisting of the business units that currently make up the Europe and the Eurasia and Africa Groups. And, in Africa, two business units will be reconfigured to more closely align operations with bottling operations on the continent, with the formation of a new South and East Africa business unit and a West Africa business unit. (Edit)

Finance, Law, & Insurance

  • Helios did a deal for Crown Agents key units marking the first time an African-managed fund acquired a UK financial institution.
  • Ringier Africa Deals group (ex-Rupu) acquired Nigerian online shopping platform DealDey
  • The Competition Authority authorized the acquisition of an additional 16% of AON Kenya Insurance Brokers Limited by AON UK Holdings  giving it a controlling interest of 56%.
  • The Competition Authority authorized the acquisition of 63% of First Assurance Company by First Assurance Holdings  on condition that the merged entity shall retain all 120 employees of First Assurance Company
  • Resolution Insurance was set to raise Kshs 2.5 billion in a series of transactions that will see new investors join private equity firm Leapfrog Investments in the list of the company’s shareholders (via Biz. Daily)
  • Two of the oldest Kenyan law firms, Daly & Figgis (1899) and Inamdar & Inamdar (1926) will now practice as Daly & Inamdar.
  • Plum LLP plans to buy a 23% of insurer British-American Investments(Britam) that had been seized by the government of Mauritius from a disgraced businessman in 2015. (Edit)

Logistics, Engineering, & Agri-Biz

  • Google agreed to buy a 12.5% stake in Africa’s largest wind project, Kenya’s Lake Turkana, from Danish wind turbine manufacturer Vestas Wind Systems A/S. The 310-megawatt Lake Turkana wind park, controlled by Lake Turkana Wind Power, is set to produce about 15% of Kenya’s electricity needs (via Marketwatch)
  • The Competition Authority authorized the acquisition  of 100% of  Schreurs Naivasha by Kongoni River Farm.
  • The  Competition Authority authorized the acquisition of 49% of, and or 100% preference shares in, Seruji Limited by QG African Infrastructure 1L.P.
  • The Competition Authority  authorized the acquisition of assets of Lima by Panafrican Equipment – (Biwott)
  • The Competition Authority authorized the acquisition of 51% Transmara Sugar by Sucriere Des Mascareignes
  • The Competition Authority  authorized the acquisition of the assets of Afro Plastics Kenya  by Ashut Engineers.
  • Finlays Horticulture Kenya  was granted approval by the Competition Authority to buy Skytrain Limited, which provides the essential service to cargo airlines at JKIA (via Biz. Daily)
  • Swiss logistics giant Panalpina completed the buyout of a majority stake in Nairobi-based air freight forwarder Airflo for an undisclosed amount. (via Biz. Daily)
  • Craft Silicon will launch the Little Drivers service starting with 2,000 drivers — formerly of Easy Taxi, which exited the Kenyan and African markets last month after a decision by one of its investors, American firm Goldman Sachs, to direct all its investments towards Uber. (via Biz. Daily)
  • A British engineering firm that designed the iconic Burj Al Arab hotel in Dubai has acquired a Kenyan company, making Nairobi its African headquarters for property, energy and infrastructure deals. Atkins will build on the strong regional market presence of Howard Humphreys East Africa to grow its consultancy business lines including design, engineering and project management. (via Biz. Daily)
  • TransCentury Group reached a settlement with its majority convertible bondholders, reducing the debt from $80M to $40M as the company has secured an equity injection of $20M from Kuramo Capital, bringing the outstanding bond debt to USD 20M. (Edit)

Real Estate & Supermarkets 

  • The Competition Authority  authorized the acquisition of 100% of Vipingo Estate  by Centum Investments.
  • The Competition Authority  authorized the  acquisition of a further 40% of Two Rivers Lifestyle Centre  by OMP Africa Investment Company (Old Mutual.) Also at Two Rivers,  Carrefour has signed a 7-year lease that  guarantees some exclusivity.
  • The  Competition Authority authorized the acquisition of  Yako Supermarket by  Nakumatt Holdings, on condition that the merged entity shall retain all two hundred and eighty three (283) employees of Yako Supermarkets.
  • Suppliers adopted Uchumi’s revival plan that included convert half of the debt owed to them into equity but Uchumi’s largest shareholder,  Jamii Bora Bank, said they were duped in investing in the chain two years ago.
  • Botswana supermarket chain Choppies finally succeeded in its quest to enter Kenya’s retail space through the acquisition of Ukwala

Telecommunications, Media & Publishing

  • The Competition Authority authorized the acquisition of 70% of Telkom Kenya  by Jamhuri Holdings (Helios)
  • Times Media Group paid a lot for half of the Radio Africa Group, but it mostly went to settle their debt that was $11 million (via #JKL #thismanpike)
  • Centum increased its stake in Longhorn to 60% in a recent rights issue (it was 31% before).
  • Bamba TV and Standard Group signed a Kshs 300 million partnership that will see KTN acquire a 50%  stake in Lancia Digital Broadcasting, the trademark owner of Bamba TV. (via The Star) (Edit)
  • Trace TV acquires African VOD Service Buni.Tv which is one of the 3 largest VOD services in Africa alongside Iroko TV and Nasper’s Showmax (Edit)
  • Longhorn Publishers is set to acquire 74% Law Africa Publishing for an undisclosed price. (Edit)

Other

  • The Competition Authority authorized the acquisition of 30% of KEG Holdings by Africa Bovine.
  •  The Competition Authority  authorized the acquisition of 51% of Universal Corporation  by Strides Pharma (Cyprus)
  • The Competition Authority of Kenya authorized the acquisition of shares in Stellar Investment Holdings by Catalyst OCL Investment LLC , pursuant to the provisions of a convertible debt instrument.
  • Marriott International have rebranded Protea Hotels to capitalize on the travel aspirations of Africa’s growing middle class and the increased presence of international hotel brands in Africa. The brand is now officially Protea Hotels by Marriott (Edit)
  • GardaWorld acquires KK Security: The international protective service firm had added KK Security to its global hetwork which now includes 18 African countries, up from 11 before. (Edit)

Rumours

  • Tigo to buy out of Airtel Kenya?
  • Gossip blog Ghafla Kenya gets acquired by Ringier (via Techweez)

Industry Stuff

  • An investment banker’s worst nightmare .. buyers in $ billon deals didn’t use financial advisers 26% of the time.
  • African private-equity deals shrink to lowest level in three years as funds reach record closes?!
  • Africa private equity exits reach a nine-year high?!
  • UK business aviation feels that a Britain split from the European Union would be a very bad thing.
  • The African Development Bank is putting up a fund with $5 billion, specifically to incubate ideas from young Africans.

$1 = Kshs 100

Farewell Naked Pizza

Today brought a series of tweets from the fabulous pizza chain, Naked Pizza Kenya that communicated their exit from the pizza business.

  • It’s with sadness that we closed for the final time yesterday & wanted to say a BIG THANKS to our fans, customers, suppliers & Tribe!
  • For 3 years, 6 months, 1 week & 4 days, we had the pleasure of serving over 200,000 pizzas and made more than 100,000 deliveries on time.
  • We’re incredibly touched by the kind words & memories so many of you are sharing about getting Naked*. Asante sana!
  • We’ll miss (most of) you, but all good things must come to an end! 🙂 And for the record, our operations are being taken over by Pizza Hut.

Ragin Cajun at Naked Pizza Kenya

This was bit of a shock, as Naked Pizza was one of my favorites pizza places in Nairobi. They had fresh pizza which you could taste all  real the ingredients and this was backed by  friendly staff and efficient service They employed a super delivery model that promised and delivered pizzas with a target of 15 minutes.

A glance at their witty twitter account showed a living breathing company in touch with its products, services, and most important, its customers. The tribe (staff) handling it were fluent in pizza, engaging in chats about their pizzas, delivery locations,  ingredients (pineapples from Thika), and health aspects (gluten & fat content, and suitability for people with diabetes). They also celebrated high-profile guests, deliveries to customer offices, and their vendors (kopokopo, safaricom etc.)

  • We don’t deliver to Gigiri – unless you work at the UN or US Embassy! We just can’t get to the rest of it in 15 minutes ( Jul 17, 2013
  • Today we start delivering to State House & Arboretum (in addition to the other areas we get people Naked*)! cc: @sunnysunwords (*Pizza) Aug 23, 2013

They also tweeted their challenges like when police arrested their delivery bike riders, when their  generator or phones lines failed, or when armed county health officers raided their restaurant a few weeks after they opened.

But clearly they had challenges, starting with their location. They had just one location in there first,  horribly situated in an office block with no parking, and far from any other mall. I’d often park at Sarit Center, have errands and meetings, then walk to Fedha Plaza, about 1/2 Km away as the building had no parking. They did well with the site and they later opened a restaurant at  Mombasa Road to serve the other side of town. While right from the start, they had demand from customers , near and far – with requests for pizza  from as far as Kiambu, and (the state of) Rongai, they never got to reach them. If a location did not fit their 15 minute radius, they turned down orders.

They also did not have the discounted or free pizzas that many Nairobians demand and which other chains do on some days (Terrific Tuesday, Pizza Friday), or evenings (happy hour).

When they raised their prices last October, I emailed Naked Pizza and Ritesh Doshi wrote back with some interesting insights about the evolving pizza market in Nairobi, one which he said bigger brands would survive. More on that later..