Posted on September 24, 2017

My What does a Merger between Nakumatt and Tusky’s mean for the Kenya formal retail market?

Nakumatt Holdings Limited is a family run business supermarket chain that has nearly 65 stores in the key East Africa countries; Kenya, Uganda, Rwanda and Tanzania. This wholly owned Kenyan private company is owned by the Atul Shah family since 1987.
Tuskys is equally a family run business supermarket chain, and the second largest chain after Nakumatt Holdings Limited. Tuskys Supermarket was formerly known as Tusker Mattress Limited has 52 stores in Kenya and has been opened since 1990. The company is owned by seven children of the Late Joram Kamau.

Family-owned businesses do present certain unique challenges during a merger and acquisition process. This is why it will be very interesting to watch the two top supermarkets Nakumatt and Tuskys merger process over the next coming months.

The Tuskys and Nakumatt merger will unfortunately reduce the number of players and competitors in the retail supermarket market as well as enhance the dominance of market share ownership between Nakumatt and Tuskys if the merger is successful. It will be important for the Competition Authority of Kenya to review this as per the Competition Act, No. 12 of 2010.

Furthermore, in this merger, how do we expect both parties to benefit considering Nakumatt’s current financial predicament? Will Tuskys be able to increase its current footprint and distribution channels in East Africa, increase its overall earnings and market share with this merger? Or will Nakumatt be able to improve its current liquidity challenges in Kenya and the rest of the East Africa countries and restore its brand image in the public eye?

Overall, we are in interesting times, therefore as the public here are a few key issues that we should expect to see through during this merger process over the next coming months:

1. Valuation of the Businesses
The price of each business is a key component of the merger.
Each family-owned business may have different approaches and methodology to valuing their respective enterprises, with different aspects of the business placing different value on their respective businesses. For example, Nakumatt has been running for much longer than Tuskys and it has more strategic locations in Kenya, Uganda, Rwanda and Tanzania.

Furthermore, each family may target a certain sale price to ensure the entire family retires comfortably or profits from the merger and not focus on the actual market value of the business.

Obtain an independent valuation from the respective professional firms.


2. Transfer of Assets
Many family-owned businesses restrict the transfer of company stock in connection with the sale of the business. This could be a challenge for both family businesses as each family has allocated assets to each respective family member in various ways. According to a PWC survey undertaken in 2014, 55% of family run business have a succession plan in place for at least some senior roles, while 23% have put in place a succession plan that is robust and documented.

Solution: Carefully review each company’s documents and bylaws relating to transfer restrictions and governance matters to ensure no issues arise. Ensure all parties openly disclose their allocation of various assets within the business for both documented and undocumented agreements.


3. Operational Transition
Both members of the family within Tuskys and Nakumatt have been heavily hands-on in running the company’s operations and decision making.

Solution: During the selling process both families should ensure that operations and management functions are run independent from both families i.e. facilitate a transfer to a non-family member or undertake due diligence on the current management team.

4. Tax
Both parties should identify early on in the merger process if there are any layers of taxation that could impact the merger process.


Both family should consult their accountants and tax advisers early in the merger process to evaluate available tax regimes.


5. Change Management
It is highly probable for family based business to face significant challenges in alignment on management, culture and strategy over the last five to ten years. Both families will need to maintain employee morale and engagement during the whole merger process.

The management of both families should prioritize the announcement of the new leadership team, define the executive roles and advise the staff on the various process moving forward.

6. Stakeholder management
A merger cannot be done in a business vacuum among the two families. Both families should brief their vendors and strategic partners to ensure the key relationships are managed well during this merger process.

Furthermore, all customers should be kept informed on the progress of the merger and the key benefits.

Unfortunately, competitors such as Naivas, Carrefour, Quickmart will be trying to take advantage of the uncertainty that customers and suppliers might be feeling post the announcement of the Tuskys and Nakumatt merger.

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