CAPE TOWN – After more than three years of trying, wine and spirit company Distell has acquired 26% of KWA Holding East Africa Limited (KHEAL), Kenya’s foremost spirits manufacturer, bottler and distributor.
Distell acquired the stake from the Industrial and Commercial Development Corporation (ICDC) – the investment arm of the Kenyan government for about R105 million. ICDC retains a 42.65% stake, along with Sentum Investments, a private equity company that holds 26.43%. Staff and small distributors also have a stake in the business.
This is the first phase of the deal. ICDC intends to exit KHEAL within four years, at which point Distell hopes to acquire majority control of the business.
“We are thrilled with our latest investment which comes at a time when the economic prospects across East Africa are highly promising,” says Distell CEO Richard Rushton. “East Africa Common Market’s combined population of more than 150 million and an economy boosted by recent energy discoveries presents exciting opportunities.”
Distell’s relationship with the Nairobi-based KHEAL dates back to 1998. The company has produced, bottled and distributed several Distell spirits brands since then. These include Viceroy Brandy, Clubman Punch, Castle Brand Aperitif. It also distributes Amarula, Drostdy-Hof and Cellar Cask, among others.
But Distell has long wanted a bigger voice when it comes to managing the distribution and marketing of its brands in that country and across East Africa. The region is growing fast and there is competitive pressure coming from the Diageo-owned East Africa Breweries Limited whose Baileys Irish Cream, Richot brandy and Johnny Walker whisky compete directly with Distell’s brands.
Delays in the government’s privatisation process nearly scuppered the entire deal. In addition the country’s Privatisation Commission had to be reconstituted before the government could sell its stake – delaying the deal further.
However Distell’s patience in Kenya, and investment elsewhere in Africa is starting to pay off. In the six months to December 2013 profits from operations outside of South Africa tipped R575 million. Of this 55% came from sub Saharan Africa with volumes growing at almost 15%. “Our star performer has been Africa and our reach, our platform, the years that we’ve spent exporting into Africa are starting to pay dividends for us, albeit still off a low base,” Rushton told Moneyweb in February.
The acquisition is Distell’s latest in a series of strategic direct investments in Africa, outside of SA. Last month, the company unveiled a bottling plant in Accra, Ghana. It has also announced Greenfields operations Nigeria and Angola, and has secured land for the manufacturing plants, scheduled to come on stream next year.
“Our plans now are to invest pretty aggressively in local infrastructure and route-to-market in select African geographies to capitalise on the seeds that have been laid for our portfolio in Africa,” Rushton says.
In Kenya Distell will work to expand local skills and build on the brand platforms already established in the country. “Distell’s wealth of experience in the ciders, spirits and wine segments will bring new capabilities to KHEAL and increase its competitive position, unlocking and creating significant value,” said Rushton.
KHEAL operates five distribution centres in the country, one in Uganda, as well as a wholly owned subsidiary in Rwanda. The company also sells products through duty-free outlets in Kenya and Rwanda.
Rushton said Distell employed a partnership model wherever possible as far as its African investments were concerned, combining its technical skills with local in-market expertise to add value and stimulate growth.
Distell is trading at R133.50 on a P/E of 21. The share has appreciated by 12% over the past year.