Amethis Finance is set to acquire a 30% stake in Naivas, the #1 supermarket chain in Kenya. The deal value has not been disclosed and is likely to depend heavily on Naivas’ debt levels. In 2019 Amethis Finance sold its investment in Côte d’Ivoire’s #2 player, CDCI.
The deal is a major step change for Naivas, which in 2019 became the largest supermarket chain in Kenya. Naivas has expanded rapidly in the past three years to fill some of the space left by the collapse of fellow Kenyan chains Nakumatt and Uchumi. Naivas opened a new store in Mombasa in October and a further store in Embu in late November. In 2019 overall the company planned to add nine new outlets.
Then Naivas acquired Nakumatt’s final six branches for Sh422m ($4.2m). Documents released to Nakumatt creditors showed that Naivas outbid rivals Chandarana, Quickmart and Tuskys by some margin. We now know why.
Naivas doesn’t release its store numbers publicly. According to Trendtype’s updated tracker, which maps stores individually by location, it has 63 stores in Kenya. At its peak, Nakumatt had 64 outlets across East Africa.
Naivas’ expansion has been a bit of a mystery given the risks of African retailers trying to expand rapidly without external funding. Back in 2016/2017, when the Kenyan Association of Manufacturers sounded the alarm bells about how major supermarket chains were lengthening payment terms unsustainably, most of the focus was on Nakumatt and Uchumi. But actually both Tuskys and Naivas had debt too (see page 13), albeit at lower levels.
The deal value, which may not be disclosed, is interesting. In July 2019, Amethis announced the final close of its Amethis Fund II at €375m ($416m), the investment vehicle that has acquired the stake in Naivas. According to the company, its average deal values are €10m-€40m ($11.1m-$44.4m). Taking the top end investment here, this could value Naivas at $148m, or $2.35m per store
Even with an above average investment (i.e. above €40m), the Amethis investment suggests a very low deal value for what is overtly an expanding and successful supermarket chain.
In the Kenyan context, the Amethis deal heats up an already competitive market.
Mauritius-based private equity firm Adenia Partners acquired a majority stake in Tumaini in December 2018 and subsequently acquired Quickmart. The two chains are currently being merged to form a network of 30 stores. Meanwhile Majid Al Futtaim’s Kenyan has seven large branches, all in Nairobi, and strong growth figures.
The Naivas investment puts more direct pressure on Tuskys, traditionally seen as the largest chain in Kenya. In October 2019 it was reported that Tuskys was seeking to raise Sh1bn ($9.85m) just to increase its working capital and address its longstanding supplier payment issue. Tuskys badly needs investment of its own to grow and compete. Tuskys’ issue is that its smaller neighbourhood stores are under attack from Quickmart and Tumaini, while its larger premium stores are under attack from Naivas (and to a lesser extent, Carrefour and Shoprite).
The Naivas investment also raises a question mark about the viability of Shoprite in Kenya. For a long time, Shoprite was known to be interested in entering Kenya. The South African retailer has been present in Uganda since 2000 (and has entered and exited Tanzania) and is believed to have once had discussions about investing in Nakumatt. Amid some fanfare, it announced in February 2018 it would open 7 stores in Kenya. Nearly two years later it has just three stores in the country and is sitting in no man’s land at a time when Shoprite’s CEO is considering exiting underperforming country markets. We question whether Shoprite was offered the opportunity to invest in Naivas and passed.
To a lesser extent, Massmart’s discounter Game, which has three stores in Kenya, also looks underpowered. Ironically, Massmart once looked at acquiring a majority stake in Naivas, although discussions did not progress.
Amethis Finance will likely look to sell its stake in Naivas after five years, as it did with Côte d’Ivoire’s #2 player, CDCI – acquired in 2014, and sold to Retail Holding (Carrefour’s partner in Morocco) in 2019. Five years is a long time in the Kenyan supermarket sector. But if Amethis Finance can continue to propel Naivas’ expansion, it will be fascinating to see who eventually steps up to buy its stake.