When modern-day versions of African tech ecosystems began taking shape a decade ago, the big, existential question was about where investment would come from.
As successive years of record-breaking funding signaled investor conviction in the promise of the continent’s startups, the topical focus soon shifted with more scrutiny paid to just how quickly investors could expect profitable exits. Yet, amid the tumultuous circumstances of a global pandemic that has triggered a health crisis and widespread economic uncertainty, that question is increasingly being answered.
Over the course of the year, news of multi-million dollar acquisitions have made headlines across African tech ecosystems, including the $288 million purchase of DPO Group, a payments services provider for African businesses, by Network International, a Dubai-headquartered payments giant. Four of these deals which have seen full or partial acquisitions of African startups are collectively valued at over $900 million. But the overall figure is likely much higher given that the value of some deals—such as the acquisition of Tanzania-based Beyonic by MFS Africa in June—remain undisclosed.
The trend of million-dollar exit is in stark contrast with the mood of industry stakeholders early in the second quarter of the year as African countries began instituting lockdown measures in response to local coronavirus outbreaks. With venture capital investors expected to become risk averse in the face of economic uncertainty, the major concern at the time centered around expected dips in funding.
One possible explanation for the trend of exits points to the maturity of local ecosystems. “It’s a function of time,” says Kola Aina, founder of Ventures Platform, a Nigeria-based, early-stage fund. “When you look at the trend and trajectory of our ecosystem, we’re right around when we should be seeing mergers, acquisitions, and these types of liquidity events,” he tells Africa.
That premise—hinged on the theory that some African startups have achieved product-market fit and grown customer bases as well as revenues over the past decade—is partly supported by exit events before the pandemic struck. Last year, landmark initial public offerings saw Jumia, the pan-African e-commerce giant, list on the New York Stock Exchange and raise $196 million while Egyptian payments firm Fawry listed on the Egyptian Stock Exchange and raised $22 million in August 2019. And in January, Circle Gas paid $25 million to acquire clean cooking startup KopaGas.
There’s a lot of value hunting happening,”
Even though big-ticket exits via acquisitions are more likely to dominate headlines, several early-day angel and seed stage investors in African startups have likely gotten proftable trade exits when bought out by larger venture capital firms. For instance, early investors in iROKOtv, the online streaming service that’s often dubbed the ‘Netflix of Africa’, made a staggering 3,000% profit on their investment when they sold their stake to later-stage VCs.
Ultimately, the economic realities of the pandemic also throw up other factors.
With a 40% drop in investment for African startups projected for this year, the likelihood of investors becoming more selective about writing checks will “push more people to look for exits in form of consolidation,” says Dare Okoudjou, founder of MFS Africa, the pan-African payments gateway.
Indeed, with a changing economic environment due to Covid-19, some smaller startups may consider acquisitions as pragmatic choices. “There’s a lot of value hunting happening,” Aina admits.
A fitting example is seen in the tourism technology space. With African tourism businesses badly hit by the pandemic, Endre Opdal, CEO of HotelOnline, a Kenyan B2B marketplace for hotels across Africa, says he’s focused on opportunities to expand the company by acquiring smaller businesses that need to consolidate for survival. That has culminated in acquisitions of Cloud9xp, a Kenyan leisure marketplace which will allow HotelOnline develop a B2C platform as well as Africabookings, a hotel-booking startup that sees HotelOnline expand its core offering.
Yet, even as smaller startups seek consolidation, present circumstances do not necessarily make them less valuable. Inadvertently, one offshoot of the pandemic has been an acceleration of the adoption of digital services, from payments to e-commerce. As such, smaller startups prospectively pose key benefits for larger startups and corporate players looking to bet on rapidly expanding through acquisitions.
Such upside is obvious in the recent $500 million acquisition of Sendwave, an Africa-focused remittances company by WorldRemit, the UK online money transfer firm. The acquisition boosts WorldRemit’s coverage of African markets, especially in Ghana, Nigeria, Senegal, and across East Africa where Sendwave operates. Similarly, Dubai-based Network International is projecting that the share of its annual revenues derived from Africa could nearly double by 2024 after its acquisition of DPO Group which already provides payments services to nearly 50,000 merchants across 19 African countries.
“Especially in the fintech space, without a doubt, the pandemic has had something to do with the acquisitions.”
“Especially in the fintech space, without a doubt, the pandemic has had something to do with [the acquisitions],” says Luke Kyohere, founder of recently-acquired Beyonic, a digital payments services provider for enterprises. As digital adoption has grown rapidly, larger players are likely revising market entry plans and are making the decision to “buy rather than build” in prospective market sectors, he argues. Their motives also extend beyond simply targeting growth to “setting up barriers to entry for the competition,” Kyohere tell Africa.
A foretold future
It comes as little surprise that financial technology startups are heralding a wave of top-dollar exits in African tech ecosystems. Over the past five years, fintech has consistently been the best funded startup sector on the continent as investors bet on products that foster financial inclusion and plug existing gaps in local financial services industries—from mobile money services and online payments processing to offering credit.
Rather than disrupting an existing industry, fintech startups have largely been seen as building up a historically underdeveloped one. And their prospects have won over global investors, from Silicon Valley venture capital firms and international finance institutions to global payments giants.
The promise fintech services hold for local startups has also become more evident over the past decade. While e-commerce startups were the early craze, the need for reliable online payments infrastructure soon made it clear that fintech startups were crucial to easing operational friction and capturing the essence of online commerce: being able to seamlessly make and receive payments.
In the wake of recent exits, that sentiment is likely to deepen as more investors look to ride the coattails of increasing adoption of digital services. And the over-arching effect of that will be the increased prospect of even more exits—a boon for founders and startups in the space.
“It provides invigoration,” Kyohere tells Africa. “We need more of this news coming out. As entrepreneurs, there is a certain benefit to hearing about these deals—it lets you know you’re not alone.”
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