A Java coffee house restaurant on Nairobi’s Koinange Street. FILE PHOTO | NMG 
Summary
- Washington-based ECP, which owns 90 per cent of Java, announced at the weekend that it was selling the entire stake to Abraaj as part of a takeover plan that has also forced Mr Ashley to part with his 10 per cent stake.
- Mr Ashley has previously said Java’s annual revenues had crossed the Sh4 billion mark.
- The company is set to face more competition with the entry and expansion of other lifestyle restaurants, especially in Nairobi that hosts the majority of Kenya’s rich and middle class consumers.
Java Coffee House’s founder and chairman
Kevin Ashley is on course to pocketing Sh1.3 billion from the sale of
his stake to Dubai-based private equity firm Abraaj Group.
Mr Ashley is selling his stake as part of Abraaj’s takeover of the coffee chain at an estimated price of Sh13 billion.
“The
Abraaj Group … has entered into a definitive agreement to purchase,
through its funds, 100 per cent of Java House Group from ECP and Mr
Ashley,” the PE firm said in a statement.
Washington-based
Emerging Capital Partners (ECP), which owns 90 per cent of Java,
announced at the weekend that it was selling the entire stake to Abraaj
as part of a takeover plan that has also forced Mr Ashley to part with
his 10 per cent stake.
Abraaj
said it could not comment on the financial details of the transaction
but people familiar with the deal said it was valued at Sh13 billion.
It emerged as the top bidder in last year’s auction of
the coffee chain that also attracted Washington-based Carlyle Group and
San Francisco-based TPG.
Java has been on fast-paced
growth since its inception in 1999, prompting ECP to acquire 90 per cent
of its shares from Mr Ashley and his partner at the time, John Wagner,
in 2012.
Mr Ashley said at the time that the coffee
chain had used the sales proceeds to expand the business, meaning the
Abraaj deal offers Mr Ashley an opportunity to cash in on the
investment.
The sale of Java is expected to cement
Kenya’s reputation as a high-return market that offers easy exit routes
for PE funds and development finance institutions.
Most
PE funds and development finance institutions (DFIs) have exited by
selling to similar funds, indicating strong demand from the
institutional investors that pool funds from wealthy families, pension
funds and governments.
Various PE funds have made
double to triple digit returns after investing in large and medium-sized
firms for five to seven years.
The high returns have
been earned across industries, spanning private education, banking,
healthcare, insurance and manufacturing.
Mr Ashley has previously said Java’s annual revenues had crossed the Sh4 billion mark.
The
company has, from a single shop in Nairobi offering tea and coffee,
grown beyond national borders, increasing its attraction to investors.
The coffee chain now has a total of 60 outlets, with an expanded menu that also features international dishes.
It
recently introduced two new brands in the Kenyan market – Planet Yogurt
(a self-serve frozen yoghurt chain) and 360 Degrees (a pizza
restaurant).
Mr Ashley said the opening of new Java
shops — which can cost up to Sh70 million each depending on size and
location — has been funded by internally generated cash, signalling the
company’s profitability and strong cash flows.
That
growth has been aided by being at the vanguard of casual dining
targeting the growing middle class who pay hundreds of shillings for
breakfast, lunch or dinner.
Abraaj said it is this consumer focus in rapidly growing economies that made Java a compelling acquisition.
“Africa’s
rapidly expanding middle class, sustained population growth and
increasing urbanisation is creating compelling investment opportunities
in multiple sectors, and we believe Java House is ideally positioned to
benefit from these trends,” Mustafa Abdel-Wadood, Abraaj’s managing
partner, said in a statement.
Java says businesspeople
and professionals frequent its shops during the day while nights and
weekends are dominated by friends and families.
The restaurant chain offers a wide range of food, including breakfast bagels, chicken, fish, pork and vegetarian burger.
The new owners of Java are expected to further expand the company’s footprint locally and in the region.
“As
Java House aims to accelerate into its next phase of growth, we were
seeking a partner that has the scale, platform and sector expertise to
enable us to achieve our aspirations,” Ken Kuguru, Java’s chief
executive, said in a statement.
“The Abraaj Group is
that partner of choice and we look forward to working closely with their
team to extend our market leadership position across the continent.”
The
company is set to face more competition with the entry and expansion of
other lifestyle restaurants, especially in Nairobi that hosts the
majority of Kenya’s rich and middle class consumers.
Growth
in the industry has sparked acquisitions, with the Java deal coinciding
with Sasini’s #ticke:SASN sale of its Sasini Coffee House for Sh70
million.
The Nairobi Securities Exchange-listed firm
recently initiated the sale of its entire 60 per cent stake in the
company that runs four restaurants on Nairobi’s Loita Street, Ralph
Bunche Road, Muthangari Road and Mombasa Road
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