A Wave of Mergers and Buy-Outs Hits Uganda'S Corporate Market

A WAVE OF MERGERS AND BUY-OUTS HITS UGANDA’S CORPORATE MARKET
The wave started early in the year, where 8 Miles, a London headquartered equity
fund, announced that it had acquired a 42 per cent
stake in Orient bank Uganda. The deal, said Orient’s vice chairman, Ketan
Morjoria, would help turn around the fortunes of the bank, which had struggled
to make a profit over the last couple of years.
“We believe there is a lot of potential to turn around the fortunes of Orient bank.
The banking sector in Uganda has been growing and the economy is doing well.
We have a very strong plan and strategy for the next three years,” Morjoria told
reporters in March. Hemen Shah, a partner at 8 Miles, said “they were looking at
a comprehensive business plan to determine how much money they would inject
in.”
Two weeks ago, Manji Holdings’ Yo Kuku announced that it had merged with
South Africa’s RCL food’s Enkoko to form a new firm, HMH Rainbow, with both
sides describing it as the “biggest chicken firm in the region.”
RCL Foods will own 33.4 per cent shareholding in the new firm, the company
announced at the start of this month. The deal comes hot on the heels of a host
of other mergers and acquisitions that have swept across the country.
In June, Old Mutual finalised the acquisition of the majority stake in UAP Holdings,
the owners of UAP insurance, pushing its stake to 66.7 per cent. Old Mutual,
which is originally South African, is listed on the London and Johannesburg stock
exchanges. It also took over UAP businesses in Tanzania, Kenya, and Rwanda.
At the beginning of July, the International medical group (IMG) announced that
CIEL limited (CIEL), a Mauritius-based investment firm, through its wholly-owned
subsidiary, CIEL Healthcare Limited (CHL), had acquired a majority stake in IMG,
the owners of International Hospital Kampala (IHK). IMG said the investment by
CHL was the first step in enhancing its future expansion plans throughout Uganda
in order to position it as the market leader for private healthcare services in East
Africa.
Dr Ian Clarke, the IMG group chairman, described the acquisition as a vehicle to
“push IMG to greater heights”. In June, Prudential plc announced it had bought
insurance firm Goldstar’s Life Assurance franchise, promising to create a market-
leader in life insurance in the country. In May, Kenya’s Brookside Dairy acquired
Sameer Agriculture and Livestock, which had been a key player in the milk
industry in Uganda. Soon, the country could see Kenya’s Nakumatt finalize the
acquisition of South Africa’s Shoprite, a move that could make it the biggest
supermarket franchise in Uganda.
“We will be signing the Memorandum of Understanding with Shoprite to acquire
their outlets in Uganda,” Nakumatt Holdings’ head of strategy and operations
Thiagarajan Ramamurthy told Kenya-based Business Daily on July 21. The
acquisition comes after Nakumatt finalised the takeover of Shoprite Tanzania.
Some media reports claim Nakumatt could as well take over Uchumi. Uchumi has
experienced low business volumes recently, closing even some of its stores in
Kampala, such as the one on Freedom City along Entebbe road, stoking
speculation that it might leave soon.
On the global scene, deals such as the one involving Lafarge, the owners of Hima
Cement, and Holcim, which was finalized in late May, could mean more
opportunities in Uganda’s construction sector.
REGIONAL OPPORTUNITIES
Ernst and Young, in a report, noted that the trend toward investment outside
South Africa is expected to continue. “East Africa (consisting of Kenya, Tanzania,
Uganda, Rwanda and Burundi) will be attractive partly because it is doing more
than most other African regions to become integrated, thereby facilitating easier
cross-border activity and attracting investors,” the audit firm said in a 2014
report.
The EAC has a population of more than 145 million people, a key demographic
feature that investors are targeting. Last month, audit firm
PricewaterhouseCoopers released a report showing traditional assets under
management in key African markets would rise to about $1tn by 2020, up from
$293bn of 2008. PWC said that this would largely be driven by a number of
factors such as: economic growth and the subsequent rise in wealth, which will
boost the demand for pensions and life insurance products; the demand for retail
investment funds will consequently increase; and the widespread adoption of
technology will make delivery of new products cheaper, bringing more consumers
into the formal financial sector.
Uganda has also tried to woo more investors into the country. In June, Uganda
Investment Authority hosted a private equity conference in Kampala, where it
urged investors and SMEs not to shy away from mergers and acquisitions as an
alternative source of affordable finance.
“In this case, private equity firms and venture capitalists look for viable businesses
in which to invest their capital and business management practices, while SMEs
looking for more than capital in form of money benefit from the partnership,
through access to new technology markets and better management practices,”
UIA said in a statement.
Paul Lakuma, a researcher at the Economic Policy Research Centre Research
Centre, said the mergers and acquisitions come with opportunities and
challenges. Companies being targeted for mergers have the opportunity to raise
capital and consolidate their positions. He said there would be challenges because
“we are likely to see some firms restructure their workforce to accommodate the
new union, sometimes resulting into the loss of jobs.”
Last year when Africell acquired France’s Orange telecom, the firm laid off
workers, some of whom decided to sue the firm. Africell said it was cutting costs
to bring the firm to profitability. Rahim Manji, the director of Yo Kuku, says their
entry is expected to improve the competition within the local market, and offer
customers more price options.
“It brings in technical know- how; we will benefit from economies of scale and
Ugandans will buy our products cheaply,” Manji said. But failure by firms such as
Ugachick to match the lower prices of HMH Rainbow could see them lose
customers.
LONG OVERDUE
Stephen Kaboyo, the managing director of Alpha Capital Partners, says the
mergers and acquisitions have been “long overdue. It’s good to see this kind of
developments.”
“When an investor or firm has its market share shrinking, the only option is for
somebody to come and puts in equity [through
an acquisition or merger],” Kaboyo said. “M&As help to unlock value for the
benefit of the owners. They are a strategic way to grow into a big company and
market share.”
While Uganda’s economy is expected to grow at a slower rate this financial year,
the long term prospects of the country remain positive, buoyed by developments
in the oil and infrastructure industries, which still make Uganda attractive to
investors. Uganda will start producing oil probably around 2020 and people’s
incomes are projected to grow – key driving factors to corporate firms that have
anything to sell, according to one analyst. The country is investing heavily in
infrastructure – roads and electricity – an indicator government is trying to
remove some of the stumbling costs for businesses.
There are opportunities, too, in the agriculture sector; Manji describes the market
for their firm in Uganda as “immense” that just needs to be tapped.
“People can still come and invest. We need a lot of maize, in daily tonnes, and if
we got someone to invest there, the market is guaranteed.” And analysts predict
there could be more deals coming.
“I foresee the same scenario happen in the telecoms sector in about five years,”
said Kaboyo, who is also the Chairman of Uganda Telecom (UTL).
To Lakuma, the Ugandan economy would have benefitted more if there had been
more local firms merging to give them the capacity to compete internationally.
amwesigwa@observer.ug

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