“It's very easy to generate deal flow because there are a lot of companies looking for capital, but it is the quality of deal flow that is critical.” So says Jacco Brink, managing partner of the TBL Mirror fund, a vehicle that invests European money in small- and medium-sized Kenyan businesses.
The fund is to all intents and purposes sector-agnostic, but a look over its four deals done to date reveals an intriguing trend. Three out of four portfolio companies fit into what would broadly be described as the business services sector. Kencall is a Nairobi-based call centre with 500 staff servicing clients in the US, UK and Kenya. Software Technologies, a business founded in 1991, provides software development, consultancy and training from bases in Kenya, Uganda, Tanzania and India. Research Solutions undertakes bespoke research projects for a client list that includes the likes of Air Kenya, Colgate Palmolive, PricewaterhouseCoopers and The World Health Organisation. The only portfolio company that does not fit into the business-to-business mould is Meridian Medical Centre, which runs a series of walk-in medical clinics, but even this services corporate clients as well as individual patients.
Why then have these smaller ticket growth capital investments gravitated towards business services companies? Brink offers an answer: “We are looking at relatively small business, relatively small deals,” he tells PEI, adding, “There has been an influx of young Kenyans who have studied abroad then came back to set up businesses in Kenya rather than living and working abroad.” These returning Kenyan entrepreneurs gravitated towards the new industries of IT and telecoms, explains Brink, as opposed to the traditional sectors and companies. This has created a new generation of businesses in the service sector ripe for growth capital investment.
Kenya's economy stuttered last year as a result of post-election violence and the global financial crisis, but the government is predicting GDP growth, which was still positive in 2008 at 1.7 percent, to show a rise this year. With enough capital to see them through leaner times, the best picks of this emerging generation of businesses could generate some stellar returns.