Amsons Group is consolidating the regional cement industry

Bamburi Cement shareholders recently got a buyout offer from Amsons Group, a Tanzanian conglomerate trying to get a foothold in the largest economy in the region. Shareholders were offered a ~45% premium on their shares, which seems like an attractive proposition, providing a substantial and immediate return on their investment well above the current market value. [Note : stock currently trades at KES ~61, premium I'm referring to is as of date of offer announcement]. Amsons Group MD, Mr. Edhah, had this to say about the deal -

We have great plans to deepen our investment in Kenya and in Bamburi

Who's Amsons?

Amsons Group is a family-run Tanzanian conglomerate founded in 2006, they've got business interests in various sectors: petroleum, oils and construction - to name a few. They've got a presence in multiple states in the region and Mr. Edhah wanted to add Kenya to the list of markets they serve. They've seen an opportunity in the construction industry and after buying a majority stake in Tanzanian Mbeya Cement in 2023, they've decided to get into the Kenyan market by acquiring a key player in the sector. Mr Edhah, a fairly young MD, has built a great business; with recent numbers showing revenues of $1 Billion according to Business Daily Africa. His hard work was recognized when he received the African Young Business Leader of The Year in the All Africa Business Leaders Awards in 2015 held in SA. What opportunity does he see in the Kenyan market?

Government housing

This is a pretty obvious one, the Kenyan government decided to construct houses for its people and cement just happens to be a crucial component in this project. This is a long-term project that has the potential to greatly benefit Bamburi, a company that's no stranger to partnering with the Kenyan government. For a seasonal business such as construction, this will surely be a great season and Bamburi is positioned to exploit this opportunity. Profit doubled in FY '23, from KES 609M to KES 1.2B, this might be a sign that the future looks bright for the company.

Other government contracts

Bamburi's experience working with the government could be something that the Amsons board considered. They(Bamburi) have partnered with the government on numerous projects. And as Kenya continues to industrialize, building more roads, bridges and ports; Bamburi, an experienced partner stands to benefit.

Demand for real estate

There's also a general demand for real estate as Kenyans migrate from the countryside to cities and towns; more residential and commercial real estate will be built. Bamburi stands to profit from this; the migration won't happen overnight but is inevitable with the government encouraging it.

Conclusion

The construction business is a seasonal business with its highs and lows. Amsons believes that a boom is incoming and are positioning themselves to profit off of it. Their experience in logistics through their Zambia business, Kalahari Trans Zambia Ltd, could reduce the cost of transport service line item in the financial statements. Reduction in that cost will in-turn make Bamburi more efficient & profitable, efficiency equals happy customers and profits equals happy shareholders. Amsons seems ready to part with $183M, they've entered into a breakup fee agreement with the top 2 shareholders; agreeing to pay $5.3M if they back out.

This seems like a good deal for all parties involved, and quite a strategic acquisition by Amsons Group.

Resources

Notice of intention , Bamburi Cement annual report 2023 , Bamburi investor relations , Bamburi stock , Bamburi share price NSE