M&A Moment: September 2020

Since the last update of deals in the East Africa region, we are six months into the era of Coronavirus and its effects across the world.

Merger and acquisition (M&A) deal are still happening, with some older ones having been in the pipeline for months before. The impact of the pandemic has also created some new M&A deals and partnerships, while reducing the value of others, and even killing off some earlier-announced merger deals, in scenarios that had all been foreseen by deal-makers.

https://twitter.com/gina_din/status/1227504077203886081

Here are some notable deals (1 US dollar equals 108 Kenya shillings)

Airline/ Oil/Energy/Mining M&A

  • Jubilee Holdings is acquiring an additional 9.4% share in Uganda’s Bujagali Hydropower from SN Power for $40 million to now own 18.2% of the project as part of a diversified portfolio that includes quoted stocks, bonds, real estate and interests in Farmer’s Choice, PDM and Seacom. 
  • The proposal to nationalize Kenya Airways through a National Aviation Management Bill, which grew out of a proposal by the airline to manage Nairobi’s main airport, will be debated in Kenya’s Parliament over the next few months.
  • Shareholders of Tullow Oil approved the sale of its entire interest in Blocks 1, 1A, 2 and 3A in Uganda and the proposed East African crude oil pipeline System to Total. 
  • The proposed Transfer of 85% of Global Petroleum Products Kenya  to E3 Energy DMCC has been approved 
  • Barrick Gold and the Government of Tanzania have signed an agreement to launch a new joint venture to oversee the company’s future gold mining operations in the country. 
  • The Competition Authority approved the proposed acquisition of 100% of Acacia Exploration (Kenya) by Shanta Gold Mauritius.
  • Safaricom bought 18.96% of Circle Gas for Kshs 385 million. The gas company has interests in Tanzania also acquired KopaGas’s technology in a $25 million transaction, one of the largest private equity investment in the clean cooking sector
  • In what will be a controversial deal, Kenya plans to have the Industrial and Commercial Development Corporation become a super agency to oversee a new Kenya Transport and Logistics Network (KTLN) that will coordinate the Kenya Ports Authority, Kenya Railways and Kenya Pipeline Company.
  •  Deal Undone: The Competition Authority has noted that the acquisition of 80% of the Embraer by Boeing has failed to take place following the decision of the parties to withdraw from the transaction. 

Banking and Finance: Finance, Law, & Insurance M&A

Kenyan Banks  

  • Kenya’s Central Bank approved the acquisition of 51% of Mayfair Bank by Commercial International Bank, Egypt’s leading private sector bank, and it will be renamed as Mayfair CIB Bank.  
  • The Central Bank of Kenya approved the takeover of 90% of Jamii Bora Bank by the Cooperative Bank of Kenya.
  • Access Bank completed the acquisition of 100% of Transnational Bank. 
  • Centum’s Bakki Holdico has acquired all the shares of the late Ambassador Bethuel Kiplagat in Sidian Bank (via Business Daily) 
  • Equity Bank has completed its buyout of 66.53% BCDC in DRC. Covid saw the final price reduced by $10 million to $95 million.  
  • Deal undone: Atlas Mara and Equity Bank mutually agreed to discontinue transaction discussions given the effects of the COVID-19 pandemic.
  • Deal undone? Businessman Naushad Merali and Mwalimu National Sacco plan to sell their stakes in Spire Bank after it issued a notice to engage potential suitors to buy a 100% of the bank. 

Investment Markets and Deal Makers

  • The Nairobi Securities Exchange acquired 61% of AKS Nominees, which holds an 18% share in the Central Depository and Settlement Corporation (CDSC) for Kshs 77 million.
  • Genghis Capital has partnered with EGM Securities to offer investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech stocks.
  • Helios & Fairfax to partner on Africa investments
  • Fanisi Capital and Ascent Capital are set to merge and raise funds for bigger deals in the region.
  • Two Nairobi stockbrokers AIB Capital and Apex Africa entered a joint venture that will lead to a merger. The entity will be part of Mauritius firm, the AXYS Group which acquired Apex in 2015.
  • African Alliance Kenya investment bank is divesting from stockbroking owing to a structural decline in the agency trading model in both the local and global financial markets (amplified by the Covid-19 pandemic)

Insurance

  • The Competition Authority approved the acquisition of 24.1% of ICEA Lion Insurance Holdings by Eastern Africa Holdings which is being used by private equity firm Leapfrog Investments for the buyout of  ICEA Lion Insurance Holdings for Kshs 10 billion.
  • The sale of Stanlib Kenya to ICEA Lion was approved by the Competition Authority though clients have pulled out Kshs 75 billion following the deal. 
  • Mauritian insurance company MUA completed the acquisition of Saham Assurance Company Kenya. 
  • Octagon Africa, who offer pension, actuarial and insurance services in Kenya, Uganda and Zambia acquired a 49% stake in the Zambia subsidiary of Alexander Forbes who doing a group strategic review. 

Regional Banks

  • The Tanzania Postal Bank (TPB) has absorbed a third bank, TIB Corporate, in a new merger deal. 
  • The National Bank of Malawi plans to invest in Akiba Commercial Bank in Tanzania in a bid to expand its operations beyond Malawi.
  • The Bank of Tanzania approved the merger of Mwanga Community Bank and Hakika Microfinance Bank to form the Mwanga Hakika Microfinance Bank. 
  • EFG Hermes and the Sovereign Fund of Egypt aim to acquire 76% of the Arab Investment Bank. EFG Hermes will own 51% of the bank and plans to transition from an investment bank to a commercial bank. 
  • I&M Bank is buying Orient Bank in Uganda.  

Remittances

  • WorldRemit has agreed to acquire Sendwave, an app-based remittance company in a cash and stock transaction. 
  • Beyonic has been acquired by MFS Africa.  

Agri-Business, Food & Beverage M&A

  • Kenya has floated an international expression of interest for the privatization of five sugar firms
  • The Kenya Tea Development Agency Limited (KTDA) and the Japan International Cooperation Agency (JICA) are each investing over Kshs 150 million to set up Africa’s first Japanese speciality green tea production factory at Kangaita Tea Farm in Kirinyaga County. 
  • President Kenyatta has ordered the Kenya Meat Commission to be transferred from the Ministry of Livestock to the Ministry of Defence
  • Dominion Farms on a parcel of land comprising 3,700 hectares at Yala Swamp in Siaya County is being transferred to Lake Agro Ltd.

Health and Medical, Pharmaceutical M&A

  • Indo-Oceania Ventures is acquiring Mayfair Healthcare Holdings
  • The CDC Group and Novastar Ventures have invested in mPharma which currently operates in Ghana, Nigeria, Kenya, Zambia and Zimbabwe, and serves approximately one million patients annually, through a network of over 400 pharmacies.

Logistics, Engineering, & Manufacturing M&A

  • Mum’s Village Kenya has merged with BabyBliss Nigeria to create the Bliss Group Africa. 
  • Portuguese multinational Salvador Caetano Group has invested Kshs 350 million to launch an automotive hub in Kenya and be the dealer for Renaultand Hyundai cars with plans to venture into the local assembly of the two brands.
  • Bolt, the ride-hailing app, has received a EUR 50 million as venture debt facility from the European Investment Bank to support its research and development strategies.
  • Kenyan e-commerce startup AfricaSokoni has acquired Nigeria company Bolorims to expand into the West African country. The deal, which gives Bolorims a 10% cent stake in AfricaSokoni, creates a new entity in Nigeria, Bolosokoni.com, with AfricaSokoni continue to trade as before in Kenya. 

Real Estate, Tourism, & Supermarkets M&A

  • LSE-listed Network International Holdings is to acquire Nairobi-headquartered DPO Group for $288 million worth of shares of Network. The firm whose payment services are used in 19 African countries, was affected by COVID disruptions of travel and the tourism sector. DPO’s founders will get $13m worth of shares and Apis Growth Fund receives $50m of shares in Network. 
  • PrideInn Group has acquired Azure Hotel and re-opened the Kshs 1.2 billion Westlands hotel that suspended operations in March during the pandemic.  
  • Cloud9xp, an online booking service for leisure experiences and an alumnus of Nairobi Garage, has been acquired by Kenyan-based travel-tech outfit HotelOnline in a share swap deal. 
  • Tusker Mattresses announced plans to recapitalize through the sale of a majority stake that is supported by seven shareholders in its Orakam parent company. But it’s not clear if this will be enough to save the struggling retailers that initially tried to secure short-term supplier support through ring-fencing of payments.  
  • Slumberland Kenya is being transferred to Simba Foam.
  • Deal undone: Tiffany & Co. has filed a lawsuit to compel LVMH Moët Hennessy-Louis Vuitton to complete a merger transaction on earlier-agreed terms, noting that COVID-19 has not prevented other parties from concluding similar deals 

Telecommunications, Media & Publishing M&A

  • Edelman, the largest independent global communications firm, has expanded its African footprint with the acquisition of Gina Din Corporate Communications
  • Scangroup completed a long-standing deal after a special EGM in May 2020 saw 88% of its registered shareholders participate and vote 99.98% in its favour.
  • Safaricom and Vodacom have acquired control of M-Pesa in Africa from Vodafone for Kshs 2.15 billion, with each firm paying 50% of the amount (Kshs 1.07.billion) as their share of the joint venture. 
  • Tigo has combined with Zantel. The Tanzanian firms have a combined 12.8 million customers and 7.4 million mobile money users.
  • Mettā and Nairobi Garage are combining their services to create Kenya’s largest innovation community, offering access to all their networks, while members will have access to both organizations’ workspaces throughout Nairobi and the complimentary business support services
  • Nigeria’s CcHub acquired Kenya’s iHub to create a mega Africa incubator.
  • Deal undone: Telkom Kenya and Airtel have mutually agreed to end their pursuit of a joint venture. This came after conditions were raised that delayed the deal.  

Other M&A

  • Sport: The legendary Williams F1 racing was taken over by US investment firm Dorilton Capital. Covid and a sponsor departure were triggers for the deal. 
  • Foreign Aid: The United Kingdom, which is leaving the European Union, plans to merge the Department for International Development and the Foreign and Commonwealth Office – to become the Foreign, Commonwealth and Development Office.
  • Art: The art prize collection of the bankrupt Abraaj Group was acquired by a Saudi art organization Art Jameel and will be hosted at their space in Dubai. 

All about EADB

The East African Development Bank (EADB) is a development finance institution, headquartered in Kampala, Uganda and has country offices in Kenya, Tanzania and Rwanda. It was one of the  few institutions that survived the collapse of the original East African community. Its main products are medium-term financing and its long-term loans for projects that can be durations of 12 years. 

The bank is in the news over a case involving Kenya’s Cabinet Secretary Raphael Tuju over their demand that he repays $13.6 million (~Kshs 1.4 billion) that arose from a $9.19 million loan in April 2015. 

Excerpts from the 2019 EADB annual report:

  • The bank is owned by four East African countries; the Governments of Kenya 27%, Uganda 27%, Tanzania 23% and Rwanda 9.5%. Other shareholders are the African Development Bank with 8.8% and FMO Netherlands with 2.7%. 
  • EADB has $374 million in assets, which includes $190M in cash in the banks. It earned a profit of $8.7 million (~Kshs 944 million). It is exempt from taxes in all members countries but pays no dividend as their policy is to build up capital of the bank.
  • Had $152 million (~Kshs 16.5 billion) of loans of which $58M (38%) are to Tanzania ventures, $39M to Uganda, $36M to Kenya ones and $17M to Rwanda borrowers. $109 million (71%) of the loans are in US dollars which is the preferred currency of most borrowers.
  • Of the loans, $92M are in stage one (performing normally), $52M in stage two (higher credit risk) and $7M are in stage 3 (impaired). 
  • During the year, existing clients – Kayonza Tea Growers, Centenary Rural Development Bank, Opportunity Bank, and the Government of Tanzania all increased their borrowing. Also in 2019, some long term loans paid off and exited the bank including Nkumba University, Sugar Corporation of Uganda and New Forest Company. The bank also participated in the official launch of the Lake Turkana Wind Power which they partially-financed while Strathmore University completed a Law School Centre for which EADB has provided a Kshs 422M loan.
  • The bank disbursed $21.3 million to new projects during the year. Some were: in Tanzania (National Housing Corporation, $30M to Iyumbu Satellite Centre, and to Tanzania Petroleum Development Corporation to distribute natural gas to 30,000 households), in Uganda ($6.3M for a medical consumables manufacturing plant in Kampala), in Rwanda ($10M to a new cement plant and four lines of credit to a national development bank) and in Kenya (Kshs 30M working capital to Jumuia Hospitals in Huruma), Sidian Bank (EUR 2 million credit line) and Musoni Microfinance  (EUR 1 million credit line). 
  • They have borrowed $81 million from multilateral development banks and other financial institutions including the European Investment Bank, African Development Bank ($22M), CBA ($9M), the Arab Bank for Economic Development in Africa ($10M) and a new line from KFW Germany ($7.8M) whose recipients include Sidian Bank, Musoni Diary and West Kenya Sugar. 
  • Kenya’s  Treasury Principal Secretary, Dr. Julius Muia sits on the board while Treasury Cabinet Secretary, Amb. Ukur Yattani sits on the Governing Council along with other East African finance ministers.

Older notes on how EADB is different from a typical commercial bank:

  • EADB disburses payments to third parties e.g. supplier or contractors for work done/services rendered to sponsor. Disbursements are made against presented supplier invoice or completion certificate for building works. They insist that sponsors procure through open tendering as much as possible.
  • Most EADB loans are repaid quarterly except leases which are monthly. Projects are required to set up standing orders for loan repayment. 
  • They don’t have a deposit-taking, commercial bank so borrowers make repayments to special accounts at other banks (escrow accounts) e.g. payments from buyers of apartments financed by EADB are made into such accounts.
  • Companies are required to submit quarterly accounts for monitoring and failure to submit accounts can delay further disbursement to a project.
  • EADB lending approval decisions are made based on the loan amount involved and applications that are larger than $1 million are approved by the board of directors.
  • As a DFI, some criteria for the financing of projects include economic measures such as increasing the level of real consumption, contribution to government revenue (corporate tax, VAT, excise, export taxes), foreign exchange saved, and employment opportunities created.
  • Projects in arrears get transferred to their “Work Out Unit,” a special department that determines how to resolve these – either by a recovery (sale of assets), write-off (after selling assets), or a turnaround (reviving projects to normal) which is the preferred and most successful option. Sometimes, the borrower is asked to recommend a buyer of assets (provide leadership) if it becomes necessary to sell some of them. 
  • The bank enjoys immunity from prosecution and this has been raised by Tuju’s lawyers in several pleadings. In the past, EADB has also faced challenges including petitions to wind it up, such as a decade ago when they trying to recover over $13M from Blueline, a Tanzanian transporter.  

Mdundo lists on Nasdaq

September 4 saw the listing of shares of Mdundo on Nasdaq’s First North Growth Market in Copenhagen, Denmark. 

This comes after the Danish firm, Mdundo offered 4 million new shares at 40 million Danish Kroner in August. They were marketed in Denmark but got interest from Sweden and other countries, resulting in 2,900 investors taking up 8.4 million shares, and giving Mdundo a value of 102 million Kroner (~$16 million).

Excerpts from Mdundo’s investor prospectus.

  • Ticker name: “MDUNDO
  • Mdundo enables musicians to upload songs and make money from their content as people to stream and download music from their app and website. It has a commercial focus in Kenya and Tanzania. 
  • Mdundo means rhythm in Swahili and it has 5 million monthly active users, half of who are in East Africa, who stream music free, to listen, and pay to download songs. 
  • Mdundo has paid out 1.9 million Kroner (~$300,000) to artistes who have uploaded 230,000 songs from 32 African countries.
  • Tanzania’s Diamond Platnumz is one of Mdundo’s top artists with over 7.2 million downloads, while Kenya’s Willy Paul, Naiboi and Khaligraph Jones have all received the Mdundo Platinum Award which is given to musicians with 1 million downloads. 
  • Use of Funds: With the new investments, Mdundo aims to double in size to 9 million subscribers in 2021 and 18 million in 2022, targeting sub-Saharan Africa, the world’s fastest-growing mobile market which will be 623 million large by 2025. The app can also be used out of Africa and the company plans to grow its international users with a subscription model that goes for about $2 per month. 
  • In the deal, they are acquiring 100% of Mdundo Kenya for 1.2 million Kroner (~Kshs 21 million). As at June 2019, it had revenue of Kshs 6.8 million and a loss of Kshs 21 million for the year. This was after costs of sales of Kshs 4 million (they pay musicians over half their revenue), salaries of 12 million, and 4 million each for administration and distribution expenses. Mdundo Kenya had accumulated losses of Kshs 75 million.
  • Upside: They estimate their valuation at $2 per active user while their peers are trading at $10 to $115 per user. 
  • Mdundo had 40 angel investors, and the new shares were sold through Danske Bank, Nordnet, Jyske, Nordea Nykredit and Arbejdernes Landsbank, with Danske Bank as the settlement agent. 
  • Other “African exports” to foreign exchanges include Jumia at the NYSE, Naspers at Amsterdam and Airtel Africa and Vivo Energy in London. Hope Mdundo performs better than Jumia.

Konza and Smart City Solutions, post-COVID

This week, the Konza Technopolis Development Authority (Konza) hosted a webinar, with the theme was using digital technologies in the planning for the future of cities after coronavirus (COVID-19) has passed.  

It was unique in that it featured two of the original main movers behind Konza; Bitange Ndemo, the former Permanent Secretary in the Ministry of Information and Communication, whose’ brainchild was Konza and Mugo Kibati who was the Director-General of Kenya Vision 2030 Delivery Board, and Konza was one of their flagship projects.

The day’s main speaker was Jerome Ochieng, the current Principal Secretary ICT and Innovation who said it was exciting to see a planned city being built from scratch. He said that previous cities had traditionally developed services in silos, but this had led to high costs, waste, and duplication. But he said, going forward with Konza, and using smart cities planning and technology, they would be able to improve the quality and performance of urban living spaces, while reducing energy consumption, service management costs, greenhouse gas emissions. He added that COVID was one of the greatest advertisers of technology – to solve challenges we encounter and that such events will drive how the government will provide services post-COVID.

He highlighted they had been pre-occupied with building the necessary and extensive “basement” work of horizontal infrastructure at Konza- underground utility tunnels (for fibre, power, water and sensors), access roads for pedestrians, BRT etc. These would serve the current and future service needs of the smart city, but that once that was done, other construction projects would take off quickly.

At this stage, Konza, which is 30% done, will also host a permanent building of the national data centre that will be ready by year-end while the city will also host the Kenya Advanced Institute of Science and Technology, according to Konza CEO, John Tanui.

Mugo Kibati said we are now in an era of lower touch, and lower contact for all our interactions and this was happening through technology. Telkom Kenya, the company he now leads, is aiming to position itself to serve these current and future needs as, even after COVID ends, as some changes it has induced, will remain the norm and sustain long after the pandemic. he cited how residential homes now require more bandwidth as more people are working and schooling from home, ordering food and getting medical attention via telemedicine etc. He said that in smart cities, and with more data being generated, that require predictability and planning, telcos will have to move up the value chain to be part of that future.

Bitange Ndemo said that when Kenya did the open data initiative, they had to host a lot of data outside of the country, but that this would not happen any more now that there is a data centre at Konza. He highlighted how there would be opportunities to use data locally to upscale SME’s.

Adam Lane, Deputy CEO Government Affairs at Huawei Kenya, said that Konza will have an intelligent operation centre, comprising network, cloud, platform and then apps, that will provide management for the smart city, like other centres that Huawei has built. He said that on a smart city street, you do not have a pole for lighting, a pole for electricity, a pole for telecommunication etc.

Agro-ecology Explained

This week there was a Webicafe session arranged by the Route to Food Initiative on Agro-ecology. Route to Food has championed a petition in Kenya’s Parliament calling for the removal of harmful chemical pesticides that are sold in the country.

The session featured two experts; Dr David Amudavi of the Biovision Africa Trust and Nicholas Syano of the Drylands Natural Resources Centre (DNRC). Biovision Africa works with smallholder farmers in 13 counties to disseminate useful and practical scientific information through various channels, and they also have a program with the African Union working with 35 partners in 9 countries. The DNRC works with 800 farmers in Makueni county, training them on and sustainable agricultural practices such as indigenous plants and rainwater harvesting.

The organizations are all trying to ensure farmers can work with nature to achieve food security. This is at a time small scale farmers, who produce most food for the country, are most affected by climate change and get the least support from the Government.

Excerpts:

  • Agro-ecology is not a new concept. Agro-ecology is as old as agriculture. It borrows a lot from indigenous knowledge of agricultural practices, and it is only the term that is new.
  • Agro-ecology is not organic farming. Indeed, organic is just one of the ways in which farmers can apply agro-ecology practices, which all seek to promote the use of alternatives such as minimum tillage, conservation agriculture, crop-rotation, manure, inter-cropping, mulching, permaculture, agroforestry, and organic – that can all improve soil health and fertility through less, or no, use of chemical inputs in food production.
  • Agro-ecology as a science looks at how plants and animals get manipulated by man to stimulate production and consumption. There is a balance in the interaction of plants, animals and humans – and anything harmful to any of the three, or the environment, is not acceptable in agro-ecology.
  • Agro-ecology means food security: If you compare communities that rely on agro-ecology and those on monoculture, the ones that engage in diversified farming are more resilient to economic shocks – and governments should direct more research there to ensure food security and sustainable agriculture.
  • Challenges include low awareness and funding. Agro-economy can feed the nation., but agriculture gets a tiny share of the national budget devoted to research funding and even smaller for agro-ecology (estimated 2% of agricultural funding). Currently, most-research funding goes to mono-culture, industrial-based, crop farming that is also supported by political voices. This is compounded further by a lack of data on the uptake of agro-ecology. as well as people who can write well about agro-ecology.
  • In agro-ecology, if you plant trees, grow as many varieties of trees. In Makueni, DNRC has re-planted trees that had vanished – lost varieties of fruit, dry land species and nitrogen-fixing trees. They also plant acacia that grows very fast and is useful for honey farming and charcoal. Individual farmers bring in their small honey harvests and the organization sells them as a collective and share the money out. They also make green charcoal in a special kiln using pruned acacia wood. Over the last decade, DNRC has planted Moringa trees – and with the outbreak of COVID this year, they have seen great demand for Moringa seedlings, oil and powder.
  • One good agro-ecology practice is to have African farmers use seeds adapted to local conditions. These can be sold, re-used, and exchanged while avoiding some monopoly seed laws that restrict what farmers can do with their seeds and multinational intellectual property disputes.