Java House should do an IPO to avoid Private Equity Vultures

Java House image
Java House, Nairobi. Photo: Courtesy

By gatuyuriana Journal

This blog always try to avoid hindsight bias. This is a ‘knew-it-all-along effect’, where after an event has occurred, people tend to claim they saw it coming, despite there having been little or no objective basis for predicting it.

You will detect such a creeping determinism by refrains people make, “I told you” “I knew” “I saw it”. I knew that team will lose. I could tell that union will break. Bonkers. Your blogger will avoiding falling onto the same pitiable drain.

But it has to be noted.When the Emerging Capital Partners, a Private Equity (P.E) fund that owned Java was exiting, this blog took a view that it was risky for Java to do a secondary sell of all her equity stake to another PE firm..

We recommended they diversify, by offering 40% equity to the public markets through the Nairobi Securities Exchange. It did not happen. They cited illiquidity of Public markets as a put off.

So, the entire equity of Java was sold to another high flying PE firm, Abraaj, incorporated in Cayman with operational base in Dubai.Things have fallen apart for Abraaj. Bill Gates and his wife, having pumped money into this PE fund, suspected books were being cooked. They hired a forensic auditor. The forensic auditor opened a Pandora’ s box, tonnes of filth was outed.

Caught out, Abraaj has filed for a provisional liquidation. This is unlike our Nakumatts and Uchumis, who cling on to the investment, even when their thieving ways are revealed. There will be ripples with Abraaj going under.

Apart from Java, which Abraaj has 100 percent ownership, the firm has majority shareholding in Nairobi Women’s Hospital, Avenue Hospital, and a further sizeable shaholding in Uhuru’s Brookside Dairy and Seven Sea Technology.

PE funds operate like vultures. Unlike normal equity investors, they barely have attachment to an investee. Their mantra is to maximise value and quit with king size capital gain.

Upon the fall of Abraaj, scavengers have come roaming for the remains. The Kenyan investment segment of Abraaj (the specific fund) will be taken over by Colony Capital. A Disaster.

Colony Capital is a bad ass PE fund. It focuses on turnarounds, non-performing loans, and distressed assets. By way of an analogy, if the fund was a medic, it would be operating at the ICU or causality. They revamp and dump.

So Java and other investees will find their operational environment changed, for bad. To prevent being tossed from one vulture to another, Java has one option.

To release half of its equity for the public markets. We understand this coffee house is valued at sh 10 billion. They can do an IPO at the main market segment.

Your correspondent has never been awarded a NYS tender. Your blogger is human being of straw. But if Java was to do an IPO, they would participate, and get slice of coffee. We have avoided hindsight bias, haven’t We?

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