Category Archives: africa venture capital

Kikao64 opens in Eldoret

This week at Eldoret saw the opening of Kikao64, a unique and modern co-working spaces for local entrepreneurs and businesses that will have a regular series of knowledge sharing and networking events around innovation, startups, art, sports, lectures, and film.

Albert Boreto, the centre Director, said Kikao64, will invite professionals to advise on company registration, tax, legal, accounting and web development services. Kikao64 has 100 desks (80 ‘hot’ and 20 dedicated ones), private offices, private meeting rooms, and good Wi-Fi across a large space of shared workspaces. The desks are available for Shs 750 per day or Shs 4,000 a week or Shs 16,000 per month, and to connect with existing community initiatives, the space has a 50% discount for nonprofits, athletes and startup businesses, while and others who sign on through the end of  April 2021, can get discounts of 25%.

Speaking at the launch of Kikao64,  the Governor of Uasin Gishu County, Jackson Mandago, said his administration was proud to be associated with the Kikao64 shared working space that embraces technology and enables people to work in the new normal of Covid-19. He confessed that he had been thinking of something similar, but the new space was better and well-situated, with good ambience, and he hoped it would become a famous meeting spot in Eldoret as others like Barnegtuny Plaza.

He said many people wanted to start businesses and two main problems they faced were office space and internet and these had been solved by Kikao64 for about Shs 2,000. He appreciated the need for fast internet for as, while trying to promote the government’s AGPO (Access to Government Procurement Opportunities), some young business people had been previously knocked out from opportunities as they were not able to completely upload procurement documents due to poor connectivity.

The site was an old run-down place building before its founders embark on renovating it with a unique design into a conducive place for people in the Eldoret area. The transformation process was delayed for a year by Covid-19 and the redesign added on safety aspects like spacing between desks and hand wash stations.

Kikao64 also has a garden that can host events, meeting rooms private phone booths, a small library with new, business and bestselling books, a coffee shop, and private parking. It is open from 8 a.m. to 7 p.m. between Monday to Friday, and from 9 a.m. to 6 p.m. on weekends and holidays.

Mauritius and the EU Blacklist

This week, the East Africa Venture Capital Association (EAVCA) organized a talk about Mauritius that’s facing a European Union financial transactions blacklist.  

Some excerpts:

  • Mauritius has set itself up as a financial hub that attracts and deploys investments across Africa. It has become the place of choice to operate through and 90% of investments into East Africa are done through Mauritius (60% are from the EU). The significance of this is that one panelist said that the Mauritius ban was worse than COVID.
  • Mauritius has complied with 35 of the 40 clauses (including the big 6 important ones), and 53 of the 58 recommended actions on Anti-Money Laundering (AML). There’s high-level commitment to correct the remaining ones, led by the Prime Minister, and the nation has a timetable to address the outstanding issues in 2021. 
  • The blacklist prohibits European investments in new funds in Mauritius, with the ban also affecting all European Investment Bank (EIB), funding, investments, lending and operations. The ban is not retroactive, so they have agreed on a grandfather period, till 31 December 2021, during which funds can continue to operate and by which time they hope the country will be removed from the list. But from October 1 2020, European funds can’t make new invests in funds structured in Mauritius. They have two options – focus on funds not established in Mauritius or invest through parallel structures (institutions that are set-up to co-invest along with funds in Mauritius) 
  •  No African country will benefit from Mauritius troubles as there are few alternatives to that country. Malta and Ghana have also been listed – so likely bases are now Dubai, or within the EU (Netherlands, Ireland, Luxembourg, France) itself.  
  • Kenya and Mauritius have been working on a taxation treaty for 8 years. Kenya has signed 14 tax treaties (including with Canada, France, Germany, India, Norway, UK, Zambia and South Africa), most before 1987, but none had raised as much attention as the proposed Mauritius DTA, as it is which is a low-tax country. Uganda and Rwanda already have Mauritius DTA’s. Kenya’s Parliament opened public participation on a new Kenya-Mauritius treaty for the avoidance of double-taxation in terms of cross-border transactions (property, profits, royalties, dividends, technical fees etc.) and the deadline for comments is October 5 202. But the treaty does not apply to most Kenyan investment firms as a 2014 KRA law change requires 50% of ownership to be in another state to qualify.  

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.

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. 
  • EDIT: Allianz will acquire controlling stakes in Jubilee Insurance’s general insurance business (property & casualty insurance) in Kenya, Tanzania and Uganda as well as the short-term insurance business in Burundi and  Mauritius for Kshs 10.8 billion ($ 100 million) while Jubilee will also acquire Allianz Insurance Kenya.  

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.
  • edit Nathan Kalumbu has acquired control of Interstrat Ltd (Big Square Kenya) which has assets worth Ksh 689 million.
  • edit The Competition Authority has approved the acquisition of Dilpack Kenya by Elgon Kenya and the companies will from March 2020 will jointly service the East African market with packaging solutions for the horticultural and floricultural industries.
  • edit The Competition Authority has approved the acquisition of Marsyetu Ltd by Mija 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.
  • edit Goodlife Pharmacy, which had a turnover in 2018 of Kshs 936 million, is acquiring assets of Salama Pharmaceuticals which had a turnover of Kshs 13.3 million and Eurose Enterprises which had a turnover of Kshs 9.8 million in the same years.

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. 
  • edit Evo Pack Ltd is acquiring Kshs 234 million worth of assets of Digital Packaging Innovation Holdings.
  • edit The Competition Authority has approved the acquisition of certain assets of Bamburi Special Products, a wholly-owned subsidiary of Bamburi Cement, by Yellow House Ltd. .. the deal was terminated by the parties in December 2020
  • edit The Competition Authority has approved the acquisition of 25% of Macquarie Airfinance Limited by Sunsuper Pty.
  • edit The Competition Authority has approved the acquisition of Ignazio Messina and C.S.P.A and Roro Italia S.R.L by Marinvest S.R.L on condition that Ignazio Messina East Africa business continues to operated and managed independently of Marinvest.
  • edit Shareholders of NSE-listed Nairobi Business Ventures approved the sale of 84% of the firm to Delta International FZE of Dubai, for Kshs 83 million, pending regularity approval.

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 
  • edit The Competition Authority has approved the acquisition of control Of Kingdom 5-KR- 185 Ltd by Madison Hotels and Resorts. The Business Daily has this story of the sale of hotels between billionaires by Prince Al-Waleed bin Talal to Binod Chaudhary.

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.
  • edit French media company Groupe Canal+ SA has acquired a 6.50% stake in Multichoice Africa. This comes after Canal+ acquired African film and television studio ROK in 2019.
  • 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.  
  • edit The Competition Authority has approved the acquisition of 20% of Icolo Limited By Prif Africa Holding.
  • edit Autochek.Africa is buying out Ringier One Africa Media’s Cheki and will operate in Nigeria, Ghana and Kenya where Cheki runs new and second-hand car sales, car importation services, car loans and financing.

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. 

Scangroup plans online EGM

WPP Scangroup will hold a unique extraordinary general meeting to obtain shareholder approval to complete the sale of one of its subsidiaries. 

The deal comprises the sale of its Kantar business, which includes 80% of Research & Marketing Group Investments, 100% of Millward Brown East Africa and its shareholding (through Scangroup Mauritius) in Millward Brown Nigeria and Millward Brown West Africa (with interests in Cameroon, Cote d’Ivoire, Ghana, Senegal and the United Kingdom). The buyer is Kantar Square Two, which is owned by Bain Capital.

Earlier this month Kenya’s Capital Markets Authority (CMA) authorized listed firms to publish their results online, pay out dividends and appoint auditors without summoning shareholders – and have these decisions ratified the next time that shareholders meet at an annual general meeting. 

However, a listed company is still required to obtain shareholder approval before selling shares in a subsidiary that results in it ceasing to be a part of the company. WPP Scangroup’s CEO Bharat Thakrar then sought court approval to hold a virtual meeting of shareholders to conclude the deal.

The Court ruled that Scangroup could go ahead as long as the CMA’s rules on adequately sharing information with shareholders, processing their feedback, questions and voting are facilitated, understand and observed.

This is a first-of-its-kind session but expect more companies to try this as May and June are when most annual general meeting’s (AGM) are held.

EGM Details: Registration is now open, for shareholders to be able to vote at the May 27 extraordinary general meeting (EGM) of Scangroup by sending in their proxies, up through May 25. Shareholders are to register using their phones, and after verification, they will get access to transaction documents. They can email or send in questions, for clarification, that Scangroup will compile and share its responses with all shareholders before the May 27 meeting which shareholders will watch via a live stream. Results of the shareholder vote will be published within 24 hours.

Deal Size: The amount due to be paid to WPP Scangroup is $49.7 million, plus a $3.3 million share of the 2019 profit, that will result in a total deal amount valued at about $53.1 million (~Ksh 5.7 billion). 

Shareholder Bonus: It is expected that about 40% of the Kantar sale gains will come back to shareholders in the form of a special dividend.

Impact of the Deal: The sale will result in a one-off gain for WPP Scangroup in 2020 and a reduction of revenue from 2021. The discontinued operations accounted for Kshs 3.3 billion (26%) of Scangroup’s Kshs 12.5 billion revenue as well as 65% of its Kshs 835 million pre-tax profit in 2019. The deal will also remove Kshs 4.1 billion of assets, held for sale at the end of 2019, from Scangroup’s balance sheet going forward.

Deal Background: From 2018, WPP sought a buyer for Kantar through Goldman Sachs, Ardea Partners, Lazard Freres and Bank of America/Merrill Lynch. This resulted in bids from four private equity firms, and in July 2019, WPP agreed to sell 60% of Kantar to Bain Capital. WPP, which had an option to buy the business, will instead remain a 40% shareholder in, and do business with, Kantar. 

Deadlines: The valuation was arrived at before the global extent of the coronavirus outbreak was known, and the November 2019 deal has a long stop date of June 30, 2020

Deal Advisors: Anjarwalla & Khanna (legal) and Dyer & Blair Investment Bank (valuation). Three independent, non-executive, directors of Scangroup, Patricia Ithau, Richard Omwela and Pratul Shah, oversaw the transaction details on behalf of shareholders. 

Edits: (May 29)

  • Final Results of the vote, that had been audited by PwC were published on the Scangroup website early on Friday May 29. They showed that 88% of the registered owners had participated and had voted 99.98% in favor of the Kantar deal.
  • Here is a video stream of the EGM
  • Here are the questions posed by shareholders ahead of the meeting and responses from Scangroup.

Edit (August 7): Scangroup booked a net gain on disposal of Kshs 2.24 billion in the sale, in the first half of 2020 and reported sales of Kshs 1.09 billion down from Kshs 1.37 billion, with the dip attributed to advertising cutback by clients during COVID. It also booked Kshs 329 million as a provision from bad debts owed by a parastatal (government agency) client, a sharp rise from 53 million in the same period the previous year, and an operating loss of Kshs -267 million, for the period.

But as a result of the sale of the discontinued operation, first-half profit was Kshs 1.5 billion, up from KShs 250 million in 2019, and a special interim dividend of Kshs 8 per share will be paid later this month.

$1 = Kshs 107.

Investment deal-making amid Corona

The East Africa Private Equity and Venture Capital Association (EAVCA) held a webinar today about the impact of Coronavirus, which appears to be a black swan event, on deal-making at private equity firms in the region.

It featured private equity (PE) and venture capital (VC) industry experts, Charles Omanga (Horizon Africa), Nigel Smith (KPMG), Paras Shah (Bowman’s Law) and Ananya Sengupta (PWC), with Kanini Mutooni (Toniic Institute) as the session moderator.

Excerpts from the session:

Coronavirus Impact:

  • Valuations A new challenge is convincing entrepreneurs that this is the value of the business because of Corona and when you come out of the pandemic how soon will it normalize – CO
  • “EBITDAC” (not EBITDA) will be a new measure of company performance and there will be discussions about measuring business valuations “before” and “after” Corona – NS
  • Businesses have had continuity plans, but none had foreseen such scenarios – shutdowns, closures of school, travel restrictions for extended periods etc – AS

Deal Pipelines:

  • The biggest request so far from investors is to scenario plan immediately on how long will Corona will take and what impact it will have on the businesses? Some deals will fall away – CO 
  • European and American investors are still sending enquiries for long term investments here – PS
  • People have not walked away from deals but provided 12-18 month periods for certain ratios to be attained – NS 
  • Deal negotiations are still ongoing, with signing delayed. In other cases, parties have come to an agreement but agreed not to sign, and that if the Corona impact is bad, they will walk away – PS

Banking Challenges and Bailouts:

  • Don’t expect reputable DFI’s to default, but they will enhance due diligence before releasing funds and decisions will take longer – CO
  • While CBK has given guidelines for lenders, the banking system is not awash with liquidity – NS
  • The Government of Kenya has been fast in coming up with measures such as taxes reductions, but in terms of financial support of SME’s business and workforce, it is unable to provide support like in other countries, where some governments have stepped forward to pay private-sector salaries – NS
  • Government has not had any talks with landlords – PS 
  • Funds may need to extend the period of resounding to cash calls beyond the current 10-14 days – NS

Opportunities:

  • Some local audit/consulting firms have seen an increase in the volume of work as PE firms are not able to come in and do their due diligence here. They are now asking local firms that can mobilize teams to digitize and upload data needed for transaction decisions – NS
  • Local manufacturers in pharmaceuticals and health will do well; also online education online entertainment and medical insurance – CO
  • Regulators have adopted technology to allow online filings and government agencies have been impressive – PS 
  • A good thing about crisis makes people think differently – and the judiciary is semi-open, with judges delivering rulings are online, but registries remain closed. This is an opportunity for Kenya to shine with its use of technology – PS
  • Tax cuts were offered by the Government, and if they stay that way, that will be positive  – PS 
  • Clean Funding: After days of shutdown, the world has come to realize the impact of clean technology is and how important it will be to invest in areas that clean the environment – AS

Advice for Businesses:

  • In a black swan event, Nicholas Taleb advises firms to exploit positive consequences and minimize negative ones – KM 
  • Force majeure clauses in Kenyan contracts, such as leases. are not common or robust, but there will be more of them going forward – PS 
  • Firms should engage with their banks, supplier and landlords – and fund managers should assist in arranging such discussions – PS
  • If a fund is already fundraising, proceed until you are not able to do more – AS
  • Some deal partners are DFI’s (e.g. IFC, DFID) that have emergency funding available for investees to draw down as loans or working capital. That happened during Ebola and now for Corona – AS

You can watch the webinar on YouTube.