Want to buy a company in Africa? Advice from an expert

  

South African consumer goods giant Tiger Brands has over the past years significantly expanded its footprint in the rest of the continent – mostly through the acquisition of stakes in local businesses in countries such as Kenya, Ethiopia and Nigeria. During a recent interview with Goldman Sachs, Thushen Govender, head of business development at Tiger Brands, shared some insights into how the company manages its African growth strategy. Here are the highlights.

How to pick a country: When deciding where to invest, Tiger Brands first performs an analysis of African countries by assessing the socio-economic environment, consumer-driven factors, GDP, GDP per capita, population, etc. “Countries such as Nigeria feature quite highly given their improving macro and socio-economic conditions. Egypt and Ethiopia will feature highly because of their populations, and this is of importance to consumer-driven organisations over the medium to longer term. If one were to consider growth alone, Angola, Ethiopia, and Nigeria would all feature highly,” says Govender.

How to decide on a company: A company with high-quality local management is critical for Tiger Brands because it doesn’t want to manage the business only with an expat team.

Govender says that a local partner is also vital. “It’s also very important for us to have a strong local partner which isn’t necessarily management, but rather a local shareholder who is of some influence in the local market. This provides an element of social legitimacy. We don’t want to be seen as a South African company going out there and conquering the world.”

Don’t paint the continent with one brush: “We tend to continuously refer to the opportunity out there as ‘Africa’, but there are over 50 countries in Africa. You can’t just consolidate the entire continent and say that’s the opportunity. You have to realise that one size does not fit all across this diverse continent and there in itself lies the challenge,” says Govender.

When it comes to Africa’s challenges, the situation also varies from country to country. “For example, in Kenya the infrastructure is significantly better in urban areas than other African countries. But as you move towards the outlying areas, it becomes a lot less developed and hence results in a costly service model, as transportation costs increase as well as the involvement of more people in your distribution network. For example, when we are servicing the Nairobi market we can deal directly with key accounts, for instance Nakumatt, the supermarket. However, as we service the outlying areas we must deal with major distributers which then deal with sub-distributors which in turn deal with the smaller format stores that are typical of rural areas or small towns,” explains Govender.

Develop products for local tastes: According to Govender there are cultural nuances across African countries. He says that as a food company, Tiger Brands has to have an understanding of each nation’s local palette. “The ethnic food that you would find in Kenya is very different from that in South Africa or Nigeria, etc. For example, in South Africa we sell a product called Chakalaka. It’s vegetables that are chopped up, pickled and then canned. It’s very popular here, but the rest of Africa probably hasn’t heard of it.”

He added that in certain instances it is necessary to tailor products for the local market. “The taste profile for bread in Nigeria is very different to South Africa, so if you are serious about the category and you want to get it right, then you would have to engineer that product to ensure it meets the local taste requirement. You see Coke doing that across the world. The level of sweetness changes with the Coke product. In the US Coca Cola is a lot sweeter than in South Africa.”

Dealing with product quality issues: So you’ve bought a company in Africa, but discovered some quality issues with their existing products. What do you do?

“After some of our acquisitions, we have come across product quality issues. But for us, it’s not really about re-launching products under another brand, because there’s inherent brand equity there. Take for example the Nigerian partnership we formed last year. It produces a processed meat sausage roll that can be sold in ambient temperatures as a result of the preservatives contained within the product. The brand has been in existence for over 30 years, and has become a national institution. You don’t just discontinue that because you may have come across some product formula issues. You reformulate it, you get it right, and you meet consumer expectations,” notes Govender.

Training and development crucial for success in Africa: Govender reckons that companies should not rely on expats for their operations in Africa. He says there are currently a high number of expats in senior positions across the continent, and that this needs to change. “I think you have to prove to the regulators and the governmental authorities that you are committed to development. You have a social responsibility as a local corporate citizen. So training and development has become absolutely core to success on the continent.”

Acquisitions vs. starting a business from scratch: Which is the best way to enter the African market – through buying existing companies or by establishing ‘greenfield’ operations? Govender says that in Tiger Brands’ case, the company views acquisitions as a springboard for future organic expansion.

“For example, in Kenya we acquired a stationery and home and personal care company. This acquisition met certain of the criteria that we look for. The business operates within categories we participate in, has a good local management team, and an element of local brand equity. Given that some of these fundamental deal criteria were met, we concluded the acquisition. We intend to use this business as a platform to launch the broader Tiger product portfolio,” he explains.



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