GK rethinking venture capital strategy - Buys bigger stake in St Lucian general insurer
Avia Collinder, Gleaner Writer
GraceKennedy has more expansion plans for Jamaica and the Caribbean, which include the takeover of St Lucian company EC Global and its foray into Jamaica's evolving venture capital market through new subsidiary GK Capital Management Limited, says Group CEO Don Wehby.
GraceKennedy Financial Group (GKFG) announced its additional 50 per cent acquisition of a stake in general insurer EC Global Insurance Company Limited, bringing its stake to 80 per cent. Eastern Caribbean Financial Holdings Limited remains its partner in the business, but now as the minority owner with a reduced 20 per cent stake.
GraceKennedy first bought into EC Global in 2004. The general insurer contributed just under 10 per cent to group insurance revenue for year 2013, Wehby said. GKFG then owned 30 per cent of the business.
Having announced the deal on Monday - the terms of the transaction were not disclosed - the GK boss appeared more keen to speak about what's ahead for the financial and food conglomerate.
"We are excited about the role that venture capital investment opportunities will play in Jamaica and plan to participate actively in this space through GK Capital," he said.
GK Capital, led by CEO Steven Whittingham, is an investment and advisory business focusing on traditional and non-traditional investment vehicles. Its other services include equities trading and corporate finance, said Wehby.
Jamaica is just in the process of building out a structure for a venture capital industry. Having researched what it will take to develop the market, with the assistance of multilateral backing, the Development Bank of Jamaica is now recruiting fund managers to set up and operate venture funds to finance start-ups and other businesses.
The window to submit proposals for this year closes Friday, September 19, and Wehby says GK Capital is planning to bid.
Two per cent requirement
However, GraceKennedy's involvement in the DBJ venture capital investment panel creates a conflict, and the company will have to decide whether its prime interest rests with operating its own venture fund or providing capital to other fund managers to invest.
DBJ has set no target for each prospective fund manager to raise, but hopes they will shoot for about US$20 million. Fund managers will be required to invest at least two per cent in their own venture funds, while DBJ plans to invest around 25 per cent and is looking to the investment panel members to inject 20 per cent.
Wehby, who is also chairman of GK Capital, says GraceKennedy is in discussion with the DBJ over whether the group should remain a part the special investment panel, which will review the responses to the call, or withdraw to pursue the venture capital project on its own. Panelists are not allowed to bid.
Wehby said an internal review was underway with a response expected by next week.
"We might have to remove ourselves," he said.
Otherwise, GKFG, which currently has a presence in Jamaica, St Lucia, Barbados and the Turks & Caicos Islands, sees further expansion of its insurance business as key to achieving the conglomerate's vision of becoming a global consumer group and a regional financial group by the year 2020, Wehby said.
In 2013, the insurance segment reported revenues in excess of US$50 million, with Jamaica International Insurance Company and Allied Insurance Brokers as two of the top performers.
"With the acquisition of a further 50 per cent shareholding in EC Global, bringing our shareholding to 80 per cent, and the further expansion activities that we will undertake within Jamaica and across the Caribbean, we expect this number to grow significantly in the coming years." EC Global's 10 per cent contribution would have amounted to around US$5 million last year.
Grace Burnett, who is currently the head of GK's insurance division, has been appointed as the chairman of EC Global.
"In addition to seeking top-line organic growth, which is a part of our strategy, GraceKennedy expects to realise increased profitability through cost and revenue synergies across our various insurance businesses. We expect to start reaping the benefits shortly," he said.
For the six months ending June 2014, GraceKennedy Group achieved revenues of $37.2 billion, a $4.5 billion increase over the corresponding period in 2013.