The 2023 DealMakers AFRICA Annual issue is out.
Criteria changes are coming for West Africa deal and transaction tables... watch this space!
KCB Group’s acquisition of an 85% stake in Trust Merchant Bank
The acquisition of the majority stake in DRC based Trust Merchant Bank (TMB), with the option to acquire the remaining 15% within two years, enables KCB to accelerate its market presence in the region. As one of the largest banks in the Democratic Republic of the Congo (DRC), TMB has US$1,7 billion in total assets, is home to one in five bank accounts in the country, and has a strong offering in the retail, small and medium enterprise, corporate and digital banking markets, making this deal one of the largest bank acquisitions executed in East and Central Africa over the past few years.
The acquisition provides KCB with an opportunity to tap the immense trade opportunities that come with the DRC’s recent admission to the East Africa Community (EAC). The group has a presence in all seven of the EAC countries, enabling it to leverage the synergies that exist in its cross-border operations while maximising the potential in the DRC market.
Via new markets, regional expansion will provide income diversification from a geographical perspective, and will allow for the acceleration of KCB’s market presence in the DRC in the near term by leveraging TMB’s 18-year operational history, vast branch network, valuable local customer relationships and deep knowledge of local business dynamics. In addition, TMB’s insurance subsidiary provides an opportunity for KCB to diversify its offerings in the DRC, creating value-add to shareholders and stakeholders by blending the current strengths of the two entities to generate tangible value to existing and new customers.
Some of the envisaged value increments include a strong capital and liquidity position – providing operational resilience – and access to innovative, competitive, and diversified product and service offerings which will further offer value, as will digital acceleration and accelerated economic growth in the DRC through increased financial inclusivity.
Potential synergies from the deal include balance sheet optimisation through reallocation of assets to higher earning asset categories, cost rationalisation and operational efficiencies, and the streamlining of systems and operations.
The deal was complex, given the regional spread of KCB as the acquirer, the cross-border nature of the transaction, and the change of control that would result. As a listed company on the Nairobi Stock Exchange, KCB required shareholder approval for the acquisition, and that of the Capital Markets Authority of Kenya.
At the time of the announcement, KCB said it would pay a cash consideration for the shares determined based on the net asset value of TMB at completion of the proposed transaction, using a price to book multiple of 1.49. In December, KCB obtained the regulatory green light in Kenya and the DRC, and from the COMESA Competition Commission.
Advisers: Deloitte, Bowmans, Stein Scop and EY.
DEAL OF THE YEAR 2022
EAST AFRICA
Prior to the transaction, Braeburn operated 16 co-educational international schools spread over nine campuses across Kenya and Tanzania. The transaction will see Braeburn’s market share in the British Curriculum Schools market rise to 12.8% from 10.2%. Hillcrest Schools will continue operating under the Hillcrest brand.
The education landscape has undergone substantial change over the years, with increased demand for private education offering international certifications, such as the General Certificate of Education, resulting in the presence of a number of international schools. It is anticipated that the transaction will increase the competitiveness of the business in the education sector. This, coupled with enhanced efficiency and Braeburn’s experience in the sector, will improve the business capability to compete in the local and international markets.
The transaction involved an extensive due diligence exercise and lengthy negotiations to ensure that each party’s interests were adequately protected, and that the transaction was implemented in accordance with applicable business transfer, employment, tax and data protection laws. The transaction required the approval of the Competition Authority of Kenya, and due to the amendment of the Income Tax Act – increasing capital gains tax from 5% to 15%, effective January 2023 – there was time pressure to ensure that the transaction was completed before the end of 2022.
Advisers: DLA Piper Africa | IKM Advocates and Bowmans.
Early 2022, Moroccan furniture retailer, the KITEA Group and pan-African private equity firm, Tana Africa Capital acquired a strategic 55.9% stake in Kenyan retailer, Furniture Palace, known for its brand, Big Save Furniture. The acquisition marks KITEA’s entry into the East Africa market, a move which speaks to its strategy to build a leading pan-African business, servicing all segments of the African market.
The acquisition will see Tana Furniture directly acquiring a 27.95% shareholding, with a 27.95% stake through Furniture for Africa, a wholly-owned subsidiary of KITEA which is, in turn, jointly controlled by Tana Furniture.
KITEA Group backed by Tana Africa Capital acquires a majority
stake in Furniture Palace
Founded in 1993, KITEA is a retailer of household and office furniture and home accessories, present across 17 cities and over 20 stores in Morocco, as well as two franchise stores in sub-Saharan Africa, in Equatorial Guinea and the Democratic Republic of the Congo.
The investment in Furniture Palace is aligned with KITEA’s vision to build the best-in-class diversified furniture retail group across Africa, with the continent seen as an attractive investment destination due to its fast growing population and personal incomes. KITEA will continue to leverage the strong foundation and brand that has been built by Furniture Palace, expanding its offering and accumulated know-how to all Kenyan and East African consumers over the coming years.
Furniture Palace was founded twenty years ago, and operates across nine showrooms in Nairobi, Mombasa, and Eldoret, with plans to expand its store network over the coming years. This partnership will allow both companies to augment their current offerings, benefit from synergies, and pursue a common vision of building a Pan-African leader in furniture retail across Africa, driving growth into secondary cities in Kenya and into other East African markets. Post-transaction, the founding shareholders of Furniture Palace will continue to run the business.
Advisers: Grant Thornton, ENSafrica and ASAFO & CO.
The exit of Evercare from its investment in Metropolitan Hospital Holdings returns Metropolitan Hospital and Ladnan Hospital to The Metro Group (TMG), its original founders. Prior to the transaction, TMG held a 41.8% stake in the company.
The Evercare Health Fund, managed by Texas Pacific Group, acquired its 54.9% stake in 2019 from the then troubled Abraaj Holdings. The partnership has seen extensive operational improvements and enhancements, raising the bar for healthcare provision in Kenya.
The Metro Group’s acquisition of a majority stake
in Metropolitan Hospital Holdings
The group’s two hospitals have 160 beds and some 350 staff members. Equipped to handle complex to highly specialised cases, they are backed by seven theatres, a 24-hour dialysis centre, an intensive care unit (ICU), neonatal ICU, and over 40 consultants. Metropolitan Hospital, which serves as the major tertiary care provider in the region, served c. 300,000 patients throughout Evercare’s investment period, the vast majority of which were lower- and middle-income patients with limited option for quality care.
The next phase in the group’s growth strategy is to continue to enhance the country’s healthcare ecosystem for both patients and practitioners – to offer world-class healthcare while developing local talent and increasing access to quality and affordable care.
According to a report released by BMC Primary Care (volume 23, 2022), the private healthcare sector in Kenya is a prominent contributor to healthcare outcomes in the country, estimated to provide 52% of all healthcare services, a role which is expected to increase in the future.
Advisers: I&M Burbidge Capital, Nedbank CIB, Bowmans, McKay Advocates and Debevoise & Plimpton.
The acquisition of the Kenyan Crowne Plaza Hotel (owned by Golden Jubilee) by Kasada Capital Management, from Nairobi businessman Nazir Ahmed Akbarali, is the second acquisition in East Africa by the private equity fund dedicated to investing in the hospitality industry of sub-Saharan Africa.
Launched in 2018, Kasada is an independent real estate private equity platform backed by the Qatar Investment Authority and French hospitality group, Accor. The acquisition offers Kasada a gateway into Nairobi’s hospitality sector. By investing in the region, which offers robust growth opportunities, Kasada aims to deliver attractive risk-adjusted returns to investors, with a long-term positive impact on local economies. Aside from its presence in Kenya, other hotels in Africa are in Rwanda, South Africa, Senegal, Cameroon, Namibia and Côte d’Ivoire.
Disposal of Golden Jubilee to Kasada Capital Management
The transaction was completed in September 2022 and included a two-step approach. Kasada purchased the assets using a leveraged buyout, taking over the substantial debt in the business and paying out a portion of the agreed value to the sellers. The assets were acquired through a separated Kenyan SPV.
Subsequent to the deal, the Crowne Plaza, located in Upper Hill – Nairobi’s financial centre and commercial hub – is undergoing an ‘ambitious’ renovation programme to reposition it in a post-COVID environment, which will see the hotel obtain the green-building EDGE certification. The soon to be dual-branded property (including the 15-story Crowne Plaza Annexe) will also include a state-of-the-art co-working space by WOJO (an amalgamation of the words, work and mojo), which will cater to the market’s growing demand for flexible workspaces.
According to statistics from the Ministry of Tourism, Kenya’s revenue from its vital tourism industry surged to more than US$2 billion last year, but remains below pre-pandemic levels. International tourist arrivals jumped by more than 70% to 1,48 million as travel rebounded, while revenue increased 83% to Sh268 billion ($2,12billion).
Advisers: Horizon Africa Capital, O&M Law and Bowmans
Hillcrest Preparatory School was established in 1965, securing its international school status in 1972, when it became a member of the Independent Association of Prep Schools (IAPS). Ten years later Hillcrest Secondary School was opened and, today, the Nairobi campus has c. 1,000 pupils.
The acquisition of the Nairobi-based campus by the Braeburn Group of International Schools comes just three years after Hillcrest International was acquired by the Dubai-based GEMS Education from Fanisi Capital for Sh1,8 billion (c. US$18m) – a deal which was shortlisted and won the East Africa Private Equity Deal of the Year for 2019.
Disposal by HIL Holdings of Hillcrest International Schools
to the Braeburn Group of International Schools
Runners Up (in no particular order)
EAST AFRICA
