Why Naivas Supermarket Sold Shares To Mauritius

In August 2013, Massmart, a South African subsidiary of Walmart, offered to acquire a 51 percent stake in Naivas for Ksh 3 billion. The offer was the largest transaction anyone had brought to the Mukuha family in 23 years of building their business. 

David and Simon Mukuha had grown Naivas to 30 branches across Kenya from retained profits alone, refusing bank debt at every step, and they had done it without a partner, without a brand name outside the Rift Valley, and without the kind of institutional credibility that unlocks supplier credit in new cities. Massmart had all of those things. The deal would have changed what the next decade looked like.

The dominance of homegrown and family-owned retailers had acted as a barrier to entry for foreign chains, as siblings squabbled over inherited wealth. Massmart's Africa director, Mark Turner, watched the court filing and decided he didn't like the outcome. The ownership dispute embedded in the equity of a company they were about to pay Ksh 3 billion for, presented a big risk to shareholders in Johannesburg and to Walmart's board in Bentonville, Arkansas. 

Massmart called off its quest for the 51 percent shareholding of Naivas and  announced instead that it would open a Game store at Garden City Mall on Thika Superhighway. The collapse of the Massmart deal was a big blow to Naivas, which was forced to cede retail space to Nakumatt at Next Gen Mall on Mombasa Road in Nairobi.

David and Simon had lost a partner worth Ksh 3 billion and a prime Nairobi location in the same month. They processed the loss and knew that selling equity, while Newton's applications moved through Kenyan courts, would produce the same outcome every time. 

On 16 October 2015, they incorporated Naivas International Limited as a private company in Mauritius. The island nation had built its corporate law to attract businesses with zero percent capital gains tax on share sales and a stable financial services sector that European and North American investors had used across the African continent.

On August 8, 2018, Naivas Holdings Limited changed its name to Gakiwawa Family Investments. This entity now held the family's stake in Naivas International, which in turn owned 100 percent of Naivas Limited Kenya. The architecture placed two offshore layers between Newton's court applications and the equity carrying the company's value. 

By 2019, Naivas had very reason to inject more capital into the business. It had 53 stores, and Nakumatt had collapsed under Ksh 41.2 billion in supplier debt, leaving more than 60 prime retail locations at once. Quickmart, newly backed by private equity, was opening more stores. Carrefour had entered Nairobi's middle-class market with 30,000 product lines that no Kenyan retailer could match. Each available location needed capital to occupy, and each month of delay was a month a competitor could claim it instead.

When Amethis Finance, a French private equity fund, came calling, Naivas grabbed the oportunity and signed an agreement. Amethis brought three co-investors: the International Finance Corporation, the World Bank's private lending arm; DEG, the German development finance institution; and MCB Equity Fund from Mauritius's MCB Bank. In April 2020, the consortium paid Ksh 6 billion for a 31.5 percent stake. No shares in Naivas Limited Kenya changed hands. The transaction occurred in Mauritius, between entities registered in Mauritius.

The Ksh 6 billion funded what profits alone could not have built at that pace. During the Amethis investment period from 2020 to 2022, Naivas grew from more than 60 stores to 84 and added five new cities to its footprint. The capital also funded hires in IT, e-commerce, and category management, an IT upgrade programme for stock decisions across the network, and the corporate governance structure that would make the company attractive to the next investor.

IBL Group, a Mauritius-based investment group with a presence across 18 countries worldwide, has been buying the Naivas stake and now has a controlling 51 percent in the company.

The Mukuhas traded control for capital, stability, and a professional management layer the family disputes had made difficult to build internally.

This story first appeared on episode two of Kenyan Founders, The History and Business Strategy of Naivas Supermarket.