Helios must get it right where others have failed

Finally, France’s Orange has announced it’s selling its 70 per cent stake in Telkom Kenya to Pan-Africa-focused equity fund, Helios Investment Partners.

The Frenchmen are following in the footsteps of the Ruia brothers who last year sold yuMobile and retreated to India. But as the two operators throw in the towel after years of bleeding billions of shillings in losses, Safaricom is enjoying one of its best years as it celebrates 15 years in operation. As reported by Business Beat last week, the mobile services operator expects its full-year net profit to be in the range of Sh35.5 billion to Sh36.5 billion.

The firm has also upgraded its free cash flow range to between Sh27.5 billion and Sh28.5 billion from Sh25 billion to Sh26 billion. With the level at which Safaricom has suffocated its peers in the industry, is it prudent for Helios to acquire Telkom Kenya, which has been bleeding billions in the last eight years? But, what’s in for Helios where the French have failed?

Helios operates a family of funds and their related co-investment entities, aggregating more than $3 billion (Sh306 billion) in capital commitments, pursuing a full range of investment types, including business formations, growth equity investments, structured investments in listed entities and large scale leveraged acquisitions across Africa.

The firm also manages the $110 million (Sh11 billion) Modern Africa Fund on behalf of a range of investors, which included the US government’s Overseas Private Investment Corporation and several leading American corporations. So has the Treasury got the right partner in Telkom? Treasury has previously insisted that it wanted a partner that understands the Kenyan market dynamics, has a viable business strategy, technical and financial muscle to run the telco.

This could have given Helios an upper hand over others such as South African telecom giant, MTN, Vietnamese mobile phone services provider, Viettel and Nigerian firm, Megatech Engineering Ltd, that are said to have made bid to buy Telkom Kenya.

Organic growth

In other words, in Helios, Telkom Kenya has deep pockets, right strategy and understanding of the local market. But, how will Helios take on Safaricom, which is the dominant mobile phone operator? With good strategy, there is enough room for growth for everyone.

This is how, Africa is the new frontier for growth. What this means is well put by the Economist and also the Times that describe Africa as a rising star, the last frontier. Frontier means a wilderness at the edge of a settled area of a country. A frontier represents uncharted territory. In a frontier business is very lucrative as opportunities are easy to spot and competition is almost none-existent.

That’s why developed countries see Africa as the new frontier for growth. For investors, this means several alternative growth vehicles. You can either grow alone, which is organic growth or you can grow through strategic alliances such as mergers, acquisitions, contractual strategic alliances or equity strategic alliance, among others. That’s why Helios has decided on acquisition. How then would Helios take advantage of this great opportunity in this growing market?

For Helios to take a share of the pie in the industry, they need to get clearly what their best arena for growth is rather than going head-to-head with Safaricom. Arena is a preferred marketplace to play. The equity fund might decide to differentiate itself on products and services delivery.

Telkom Kenya missed this opportunity by fighting for voice yet they could do better in landlines and data. In other words, Helios has to get it right on their market opportunities, where they have the resources, capabilities and competences to play in, and ability for effective execution.

Helios should learn from what Telkom didn’t. Telkom Kenya had a huge competitive advantage on the data market with its extensive fibre, copper and legacy connectivity to business but it gave away this in search of the fast growing cellular market, where Safaricom was already fully entrenched. Unfortunately, the company never changed tact even after realizing the strategy was not working for it.

—The writer is senior lecturer, strategy and execution, and academic director, MBA programmes, Strathmore Business School.

fogola@unendeavor.com