Markets & Finance

Java coffee chain sells majority stake to US equity firm

JAVA

A Java coffee shop in Nairobi. Java recorded an annual growth of between 30 per cent and 40 per cent in the past five years. Photo/Fredrick Onyango

An American private equity firm has bought a majority stake in Nairobi Java House, marking a significant milestone for the 13-year old coffee chain that is set to expand to neighbouring countries.

Managing director of Emerging Capital Partners (ECP), Alex-Handrah Aimé, said in an interview with the Business Daily that the new capital injection will be used to finance the coffee chain’s local and regional expansion.

She declined, however, to disclose the transaction price.

Java’s managing director, Kevin Ashley, said the business has recorded an annual growth of between 30 per cent and 40 per cent in the past five years, with turnover touching Sh1 billion in the year ended June 2011.

“East Africa is a diverse economy, with the middle class mainly pushing its growth and they have needs that have yet to be met,” said Ms Aimé.

Being a private company, Java is not obligated to publish its financial statements.

The 2012 Economic Survey report shows that the hotels and restaurants business contributed Sh51 billion to Kenya’s gross domestic product last year, a 112.5 per cent growth since 2008 when it was worth Sh24 billion.

ECP already has local presence, having invested Sh2 billion in telecommunications firm, Wananchi Group, and the civil engineering and construction company, Spencon.

READ: Wananchi to raise Sh8.9 billion for expansion

The private equity is opening an office in Nairobi to oversee its interests in the region.

The growing middle class in East Africa makes the region attractive to the equity firm, which is looking for more investments in the region.

ECP negotiations with Java started a year ago.

From a one coffee shop in Adams Arcade 13 years ago, Java House has grown to be one of the leading coffee shops in the country with 13 branches, the most recent opening its doors last week.

It was founded by Mr Ashley and John Wagner, both American citizens. It has also opened three planet Yoghurt outlets, which mainly sell yoghurt.

Mr Ashley estimated that a new Java House branch costs between Sh30 million and Sh60 million to open, depending on its size and location. So far the chain has funded its expansion using internal revenues.

“This growth is achievable going forward. We have been doing it in the past couple of year. We are above an SME ,” said Mr Ashley.

Ceaser Mwangi, the managing director of Nairobi Securities Exchange’s listed Sasini, which owns a rival coffee chain, Savannah Lounge, said coffee houses and lounges have become a lifestyle thing for the middle class.

“It all depends on people’s disposable income as long as the economy is growing the middle class will spend,” he said.

“There is enough business for all of us, especially as the economy grows.”

‘‘Java is a much bigger entity than us. We are happy to have them as a benchmark, they were in the market before us and maybe that is why an equity firm is eyeing them,” he said.

Java has plans to open a branch in Nyali by August, Westgate Mall in Nairobi by December and on Thika Road early 2013.

New outlets are also planned in Kisumu, Nakuru and Eldoret before moving to other cities in East Africa.

Raised $1.8 million

New Planet Yoghurt, the first self-serve frozen yogurt brand in Africa, will also open a fourth outlet in Galleria Mall this week.

“Our vision is beyond Kenya. We would like to be the leading restaurant across Africa,” Mr Ashley said.

Java has been facing competition from outlets such as Savannah Lounge, Dormans and Art Café, which have also been rolling out outlets in key locations across Nairobi.

ECP was launched in 2000 and has raised over $1.8 billion to invest across Africa.

READ: High returns draw PE firms to region

It has invested in 40 countries on the continent, diversifying in different sectors with 40 per cent being in telecoms and financial services, according to Ms Aimé.

It has made over 50 investments and 23 exits including Celtel, which it sold to MTC in 2005, PanAfrican Energy and Orascom, a telecom firm, in 2006.

It has offices in Cameroon, South Africa, Cote d’Ivoire, Tunisia, Morocco, and Nigeria boasting a track record of successful investments in the region.

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