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DealMakers AFRICA Q1 2023


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In this inaugural issue of our Corporate Law Digest, we look at significant events that have taken place in Kenya’s business environment over the last quarter, to provide you with a glimpse into the country’s transforming M&A market. We find that despite growing concerns about the devaluation of the Kenyan Shilling, the increasing cost of living, unemployment and civil unrest, investors seem undeterred: banking, fintech and alternative fuel sources feature prominently in a market that is diverse, flush with entrepreneurs, and backed by its new government. Kenya is open for business, and with an election well behind it, ready to flourish.

Recent M&A Trends in Kenya

In recent years, the M&A space in Kenya has been punctuated by transactions in the financial industry, specifically where investors are looking to expand or diversify their portfolios. Two key deals of note in Q1 are those of Equity Bank (Kenya) Limited (EBKL), the largest financial services institution in the region, which purchased certain assets and liabilities of a local “troubled” Spire Bank, and the acquisition of 55.8% of Maisha Microfinance Bank by Cactus Cantina Investments Limited, a sister company of lending app Shara, which is currently awaiting Central Bank approval. On completion of the EBKL transaction, loan customers and customers holding deposits in Spire Bank become EBKL customers, significantly expanding EBKL’s asset portfolio and customer base. With respect to Maisha, customers of the lending app Shara will be able not only to borrow more, but save with the lender. 

Within the fintech space, there has been a continuing upsurge of activity. According to a Fintech Global study published in February 2023, Kenya’s fintech deal activity increased by 14% from 2021 to a total of US$158 million. The largest Kenyan fintech deal in 2022 raised $75 million for M-Kopa, a linked asset finance platform. This is nothing to sniff at. 

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Njeri Wagacha
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Rizichi Kashero-Ondego

Impact investment funds, as well as green energy companies, have equally been hot targets in Kenya. BlackRock Alternatives, a climate-focused fund, is set to acquire a stake in Lake Turkana wind park, Africa’s largest wind turbine complex. Furthermore, Australian hydrogen project developer Fortescue Future Industries plans to build a 300 MW green ammonia and fertiliser plant in Kenya, the country’s first project involving green ammonia production. This is not to forget that in late 2022, New Forest launched the Africa Forestry Impact Platform (AFIP), a partnership between British International Investment (BII), Norfund and Finnfund with the goal of helping to transform the forestry sector in sub-Saharan Africa. Green investments seem destined to take pride of place in M&A deals in the near future.

SMEs in Kenya

A report issued by the Central Bank of Kenya indicated that SMEs constitute 98% of all businesses in Kenya, contributing 3% to GDP. A survey by the Kenya National Bureau of Statistics released in 2018 indicated that approximately 400,000 micro, small and medium enterprises do not make it past the second year, while very few reach their fifth year. In this respect, SMEs have generated a lot of local and international interest in their quest to capital raise. Government support has not lagged far behind with initiatives such as the Start-Up Bill 2021, proposing to provide a legislative framework that fosters a culture of innovative thinking and entrepreneurship. 

In March 2023, the African Development Bank Group approved a $30 million Trade & SME Finance Facility for Family Bank Limited (FBL) in Kenya, aimed at boosting intra-Africa trade, promoting regional integration, and reducing the trade and SME finance gap in the country. The facility aims to provide a trade finance line of credit, a transaction guarantee, and a targeted line of credit to support short- and medium-term financing for SMEs in the health, renewable energy, and agriculture sectors, including women-owned businesses. 

So while SMEs have room to grow, it is also important to note that in March 2023, a new report commissioned by Kenyatta University shows that debt funding is the most popular method of raising capital among micro, small and medium enterprises (MSMEs) in Kenya, with 42% preference, compared to grants and equity financing at 36% and 22%, respectively. Investors should take note: entrepreneurs are not likely to be willing to let go of control, especially when they are confident that a debt instrument may help them to scale.

Looking ahead 2023

Kenyan firms are increasingly turning to cleaner energy sources to reduce carbon emissions. This has seen a significant rise in the businesses entering the Kenyan market-focused on clean energy and e-mobility. We are seeing start-ups like Ecobodda Inc, Africa’s first electric motorbike taxi, providing battery-swapping charging technology for electric motorcycles. Roam Rapid and BasiGo, are also cementing their position in the electric vehicle industry by providing electric bus solutions to the Kenyan market. Large companies and state corporations such as KENGEN are also dipping their toes in the industry by installing electric vehicle charging infrastructure at some of their petrol stations and by proposing a special tariff for electric vehicles. 

Earlier in March 2023, the European Investment Bank (EIB) mobilised $1,9 million in grants to support green hydrogen in Kenya, and the European Union, together with the UK government, is investing Ksh13,5 billion ($108 million) in the Menengai geothermal project in Nakuru County, Kenya, which will provide cheap, clean and reliable energy to over 700,000 Kenyans. 

We look forward to sharing further positive developments that further cement Kenya’s position as a regional M&A market leader.

Wagacha is a Partner and Kashero-Ondego a Senior Associate at CDH Kenya.

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