EXCLUSIVE- Saudi Arabia’s sovereign wealth fund has acquired a 34% stake in consumer electronics and household appliances retailer BTECH from Africa-focused investment firm DPI for an undisclosed sum, according to a statement (pdf) out this morning. The Public Investment Fund (PIF)’s wholly owned Egypt arm, Saudi Egyptian Investment Company (SEIC), will appoint two members to BTECH’s board, insiders tell us. The tie-up with PIF will “accelerate [BTECH’s] innovative growth strategy, its digitization efforts, while scaling new business verticals and existing core operations,” the statement reads.

ESSENTIAL BACKGROUND- African Development Partners II, a fund advised by impact investor DPI, acquired the stake in BTECH back in July 2016 in a transaction said at the time to be worth about USD 35 mn. The remaining 66% of BTECH was (and remains) owned by BT Holding, a vehicle owned by the founding Khattab family.

ADVISORS- Arqaam Capital was sell-side M&A advisor, with White & Case providing international counsel to DPI alongside local counsel Matouk Bassiouny & Hennawy and Zulficar and Partners. Our friends at EFG Hermes were buy-side M&A advisors, with Adsero-Ragy Soliman and Partners acting as local legal counsel and Akin Gump doing international legal duties for PIF. PWC were sell-side financial advisors.

So not a great investment, right? After all: Is there an industry on this planet worse than selling consumer electronics and household goods in physical stores? RadioShack, Future Shop, CompUSA and Computer Land (to say nothing of countless local mom ‘n pop shops) brought the pages of Byte magazine to life for a generation of nerds-in-training. Egyptians planned stopovers in Heathrow to snap up the BlackBerry Bold 9900 from Dixons. As dinosaurs once ruled the earth, so these brands dominated consumer electronics retail around the world. And now, like the dinosaurs, they are no more — closed, liquidated, rolled into onetime competitors, or limping along as shadows of their former selves thanks to ecommerce. What more can you expect from an industry notorious for its low-single-digit net margins?

But two consumer electronics retailers are thriving: Apple, with its ubiquitous stores … and BTECH.

“Wait, Enterprise, BTECH?” you ask. Yes — this is a smart play by PIF. The home-grown chain is on track to deliver revenues of c. EGP 11 bn in 2022 — up 30% from last year. During DPI’s six-year holding period, BTech grew its top line 5x and its bottom line 10x. It had just under 70 stores when the DPI investment closed in the summer of 2016 — it has 143 today and will open 10 more stores before the end of this year. And from a base of zero when DPI entered the company, some 20% of BTECH’s sales are now online.

DPI’s exit carries one big message for foreign investors: You can make a killing here in Egypt if you pick the right target — devaluation be damned.

We sat down over the weekend with BTECH CEO Mahmoud Khattab to talk about how far BTECH has come — and how very much further it has to go before he can sleep. Edited excerpts from our talk are below.

KEY TAKEAWAYS-

• Revenues grew 5x and the bottom line 10x during DPI’s holding period — and the company will grow its top line 30% this year. E-commerce now accounts for for 20% of its top line;
• BTECH has no plans to expand outside Egypt just yet — it sees too much potential here;
• Launching its MiniCash BNPL service as a standalone brand is “under discussion”;
• A project with McKinsey (one of the consultant’s largest in Egypt) is laying the foundation for a complete re-think of its digital operations;
• Khattab thinks retail doesn’t get enough respect as a creator of meaningful employment.

ENTERPRISE: Your press release on the transaction talks about how working with the PIF is going to help you accelerate your growth. What do they bring to the table?

MAHMOUD KHATTAB: It’s simple: We believe in teaming up with best partners — on everything. Whether that’s your employees, the independent directors on your board, or your shareholders. That’s why we’re working with McKinsey on a three-year engagement that is, I believe, the biggest project they have in the country and their biggest in the region on household appliances and electronics.

DPI were great partners who brought a lot of added value to the table. It’s great to have someone sitting by your side, helping you reach places you can’t go on your own. When it was time for DPI to exit, we had multiple offers from potential acquirers. But in going with PIF, it’s not about a capital injection or a partner with deep pockets. It’s about someone who can help us be more aggressive — it’s about more than the retail expansion. It’s about fintech. It’s about logistics. It’s about best practices around the world. It’s about all of the stuff on the back end that we’re going to need to grow — that’s the PIF’s value add.

E: So does PIF coming on board signal that you’re looking to grow outside Egypt?

MK: No. We don’t see ourselves growing outside Egypt for the time being. We’ve been here for 25 years. We’re number one in our industry by market share, by number of stores, by years in business. By any measurement. But we feel we’ve not even scratched the surface, and until we’re good with that, we’ll stay focused on Egypt. Only then will we look outside the borders of a country with 104 mn people.

E: You say you’re aggressive, but BTECH has been fairly quiet about telling its corporate story. What do you mean by “aggressive”?

MK: In the six years DPI was our partner, we grew the top line 5x and the bottom line 10x. We more than doubled the number of stores we have in the market and now comprehensively cover every governorate except for North and South Sinai and Wadi El Gedid. We were at zero when it came to e-commerce. Now it accounts for 20% of our revenues and we have a 23% market share of online sales in our segment. We just launched a new B2B platform. And even as we grow the online business, we’re going to be opening a new store just about every 10 days through to the end of the year. And we’re not content: We’re innovating as we do this. It’s about adding to your revenue mix and using today’s margins to invest in the future.

E: It’s difficult in any industry to grow your bottom line twice as fast as your revenues. What’s behind that?

MK: There’s definitely the impact of scale — the larger we get, the more we’re spreading infrastructure and other central costs out over the business. Scale gives us the chance to buy on better terms, which falls to the bottom line. And we’re very careful to take a balanced approach — we invest in the future, but we don’t do it at the expense of losses today.

Working on costs and optimizing our expenses all the time is very important — we’re always trying to bring down expenses, to improve our bottom line. I don’t believe in buying market share, in losing and hoping to be profitable in the future. If you’re not profitable today, you’re not going to be profitable tomorrow. It’s a mindset.

E: What’s the B2B platform you just mentioned?

MK: The idea is to serve small retail shops and distributors. We launched on 1 September and already have 5k dealers on the platform. The idea is that we’re giving superior service to smaller retailers through an online platform. From their mobile or laptop, they can check our stock, place an order, compare prices, and get products delivered to their stores the next day. Dealers can pay online or find alternatives if a product is out of stock. We see big growth potential in B2B.

E: You said the business will grow 30% this year despite all of the challenges the market is facing with imports and the slowdown in economic growth. What’s driving growth?

MK: It’s simple: We have more stores than anyone else. We’re all over Egypt, we’re very strong online, and we offer our own MiniCash consumer finance product, which enables about 42% of our sales, making us the market leader on consumer finance for household appliances and electronics. That’s about double the nearest competitor. We’re going after the B2B market. We’re adding stores. And we’re being judicious with costs as we do that — like with the rollout of our BTECH X line of smaller stores that we can roll out faster in areas including malls and Chillout shops with a knocked-down product lineup and then delivery for larger items.

We don’t sit around when market conditions are challenging. We enjoy the downtime to grow our market share and double down on growth plans so we’re in a better place when things swing back to normal.

E: Do you have plans to roll out MiniCash as a standalone brand? To finance purchases made at other retailers?

MK: All I can say is that it’s under discussion, but for now, we’re a closed loop — as it stands today, we only finance our own products and services.

E: Your announcement talks about “progressing your digital transformation.” What does that mean?

MK: Over the next three to four years, we’re going to invest more than EGP 1 bn in digital transformation. It will touch every single corner of the company. Not just the customer experience, but all of the back office, everything. It is one of the most important areas in which we’re working with McKinsey. We’re already taking steps: This past Saturday (1 October) we announced a change to our internal structure and appointed an executive vice president for B.Labs and digital. We’re going to be developing our own technology from the core on out.

E: You’ve been heard saying before that retail, as an industry, doesn’t get enough respect.

MK: BTECH will have 6k staff at the end of the year. We will have hired 900 new team members this year. As retailers, we are creators of jobs.

Look, I’m biased on manufacturing vs retail, but it’s all “industry, industry, industry” in the press. Everyone runs after the manufacturers — even though more than 34% of the workforce in Egypt works in retail. Nobody talks about trade and distribution. We’re not laying people off — we’re hiring year-round.

I challenge any manufacturer in Egypt to create jobs and support new households the way retail does. We are in 24 governorates. In 33 cities. And we don’t just hire people — we invest in them. Our team members have, on average, each had three training courses this year at the BTECH Academy. We’ve created a diploma program in retail management in partnership with the government and we’re going to roll out university-level retail and retail management programs with a couple of universities.

E: If you could change one thing about your business, what would it be?

MK: We’re too slow. We could grow faster if we change the way we do business. We need to get a handle on the scope and pace of change happening all around the world. 5x revenue growth and 10x profit growth are great, but they’re just the beginning. I want to keep this beast hungry all of the time — we want to always, always have the spirit of a startup, even now, 25 years down the road.