Kenyans mint billions from foreign investor interest

By JEVANS NYABIAGE

Nairobi,Kenya:Taking stock: Multinationals eager to tap into the local market are wooing entrepreneurs with deals that are too good to pass upMultinationals’ growing appetite for local companies is creating a new crop of billionaires.

Kenyan investors have been making “clever exits” and reaping millions — billions in some cases — in the process of selling their firms, particularly those in the  telecommunications, manufacturing and financial sectors.

Some local business owners are taking the large sums of money on offer to  shore up their companies’ competitive positions, others are looking for a return on investment, while others are relinquishing ownership to deep-pocketed foreigners, leaving it to them to build networks, set up new plants, forge strategic alliances and market their services.

Einstein Kihanda, the chief investment officer at ICEA Lion Asset Management, says principal shareholders may be snapping up the opportunities coming their way out of a desire to get a return on their businesses after decades of investing time, effort and resources.

“There is considerable interest from leading international firms in the Kenyan market, and rather than start a business from scratch, it is easier for these players to venture into the market via acquisitions,” Kihanda said.

Competition

And with the current competition in the market, entrepreneurs may prefer to cede part of their ownership (or exit entirely) to stronger players with more resources to drive their business forward in the face of an increasingly dynamic business environment.

“Certainly, the growing interest in Kenya due to various factors — such as peaceful elections and transition, strategic location, demographics and natural resources like oil — is all contributing to international investors’ keenness to venture into the market via existing businesses.”

Aly Khan Satchu, an independent investment analyst, notes that a number of the businesses that have been bought out recently lacked the financial and managerial capacity to take their business to the next level.

“Looking at the businesses, you will note that a number of them were not the dominant players, therefore, they needed players or partners with much deeper pockets, and I think this is why you are seeing these exits,” Satchu said. “Bigger players might also find the original entrepreneurs more of a nuisance than a help.”

Just a fortnight ago, internet service provider (ISP) AccessKenya announced that it had received a buyout proposal from technology giant Dimension Data Plc. Should the deal sail through, it would see the firm delisted from the Nairobi Securities Exchange.

Dimension Data Plc — which also owns Internet Solutions Kenya Ltd, Dimension Data Kenya and Plessey International Ltd — has offered Sh3.05 billion, or Sh14 a share, giving shareholders a 46.5 per cent premium over the Sh9.55 price it closed at on May 6, its last day of trading.

If successful, Dimension Data plans to merge its Internet Solutions Kenya business with AccessKenya.

The deal could see the Somen family, who are the majority shareholders, earn nearly Sh1 billion, which will take their total earnings from share sales to Sh2 billion since launching its 2007 initial public offering.

Founders

Mr Tejpal Bedi, whose ISP (iConnect) in 2007 merged with Internet Solutions South Africa, says for individual founders, the push to exit could be due to willing-buyer-willing-seller gains.

“The amount is too good to refuse and helps founders retire before they become irrelevant. For someone to have brought a company from zero to multi-million-shilling value, they have spent many hours, so perhaps when a good exit comes, they take the money before they lose their energy and enthusiasm,” said Bedi, who is the chairman of Kenya IT and Outsourcing Services (KITOS).

He added that many enterprises in Kenya lack economies of scale, which buyouts can change.

“Dimension Data/Internet Solutions have global customers in Africa, hence they will have better margins, so the buyout makes sense,” said Bedi, adding that international bandwidth will also be cheaper for larger players in the ISP industry.

“Further, the teams that survive the merger/takeover will have better pay and better prospects of climbing the ladder careerwise.”

Health and beauty

And last month, French firm L’Oreal entered the Kenyan market through the acquisition of Interconsumer Products’ health and beauty business.

The deal is estimated to have been worth more than Sh1.6 billion ($20 million), earning the firm’s founder and CEO Paul Kinuthia millions.

But the grandmaster of deals is businessman Naushad Merali. He has substantially cut back his stake in the IT sector, where he had been dominant with significant shares in Airtel, Kenya Data Networks, Swift Global and Dimension Data, from which he exited in 2009.

The businessman owned 40 per cent of Airtel (then KenCell Communications) with French partner Vivendi (60 per cent) in 2000. His share sales have seen him make billions of shillings in capital gains.

But even as some local shareholders cede ownership in telecom firms to harvest their investment, people familiar with the industry say an inability to raise money in the current business environment is forcing some to unwillingly take the exit option — something that may prompt a review of the sector’s policies.