Interest in business reflects private equity demand for African consumer sector
By John Aglionby
03 July 2017
Financial Times (FT.com)
Copyright 2017 The Financial Times Ltd. All rights reserved
Abraaj Group, an emerging markets focused fund group, has agreed to buy African coffee chain Java House from private equity rival Emerging Capital Partners and Kevin Ashley, the Nairobi-based company’s executive chairman.
Abraaj has acquired the company for an undisclosed sum following a year-long auction that attracted interest from a wide range of private equity groups. ECP received 12 non-binding bids for the company, which Mr Ashley founded in 1999 in the Kenyan capital.
The competition to buy Java House reflects international private equity firms’ growing interest in east Africa, according to analysts, particularly in the consumer sector. Alex-Handrah Aimé, an ECP managing director, described the return made by the pan-African group on its investment in Java as “good” and “consistent with what we’d expect”. ECP was reported to have sought bids of $100m for Java House.
ECP bought 90 per cent of Java House in May 2012, with Mr Ashley retaining the remaining 10 per cent. They have grown the company from 13 Nairobi outlets in early 2012 to 60 across Kenya, Uganda and Rwanda. They also launched two further restaurant brands: Frozen Yoghurt and 360 Degrees Artisan Pizza.
Ashish Patel, the head of Abraaj’s east Africa office, said the group was likely to hold Java for about five years and during that time would like to grow it to “several multiples” of its current size. Abraaj will retain Mr Ashley as an adviser.
“We have geographical opportunities, we have different themed opportunities,” he said. “The Kenyan market is not just about coffee. We’ve got a comprehensive investment plan and there is a lot of stuff we want to do that is done better and easier with 100 per cent ownership.”
Mr Ashley said expansion would be limited only by the growth rate of Africa’s middle class in what are rapidly-urbanising societies.
“We’ve shown that we can move into a town of 100,000 people and make it work,” he said. “Java validates the middle-class experience for many people in Africa; their hard work and dedication to their education can be rewarded by taking their family to a nice place.”
Mr Ashley said Abraaj was picked as the buyer of Java partly because of the price offered but also because of “their track record“ in the region and the sector.
“They understand the idiosyncrasies of the African market and they recognised that Java’s culture was important in the success,” he said. “The secret of our success has been our people-centred approach. When you go into a Java the staff seem happy and the customers seem connected with the staff.”
Abraaj says it has invested $3.2bn in 80 entities across Africa over almost two decades. Java House is the fourth transaction from its third generation Africa fund, which closed at $990m in 2015.
PwC acted as financial and tax advisers to Abraaj on the transaction while Rothschild and KPMG represented ECP. The deal is expected to close within three months, once all regulatory approvals have been obtained.
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Copyright 2017 The Financial Times Ltd. All rights reserved.