WHY AFRICAN STARTUPS ARE EMERGING TOPS ON ACQUISITION LIST

When startups buy startups, eyebrows are raised and questions spring to figure out what is happening. African startups are becoming acquirers themselves. In February, Lenya’s BitPesa, which raised two funding rounds last year to take its total secured investment to around the US$10 million mark, bought Spain-based online money transfer platform TransferZero.

Ghanaian marketing startup Kudobuzz has made two acquisitions this year, buying e-commerce product RetailTower and advert creation tool AdGeek. This was a process begun by Nigerian on-demand delivery startup Metro Africa Express (MAX) late in 2016 when it acquired Lagos-based Easyappetite.

But why is this happening, even before the African tech startup space has matured to the point where startups are serious targets for more major acquirers. BitPesa chief executive officer (CEO) Elizabeth Rossiello says the TransferZero acquisition came about as the Spanish firm was a BitPesa customer and the two teams had a strong working relationship.

“The acquisition came out of the realisation that we could be more successful working together and combining our assets,” she said.

That said, it was still a very big deal for an African tech startup to buy out a European one.

“I’m not sure what the numbers are, but there are very few small African startups that have grown in the last few years to purchase a European payments company. It takes a lot of corporate governance, financing, compliance and legal work to complete an acquisition,” says Rossiello.

“There is a lot of operational execution required in the months afterwards to ensure optimisation of the new assets. We are really proud of our team’s work and achieving this milestone event.”

She says she sees a number of such consolidations occurring over the next few years as certain sectors slim down. Spaces such as fintech, for example, are crying out for consolidation, with significant stakeholders preaching its necessity. The Finnovating for Africa report released last year by Disrupt Africa, for example, found there were 125 payments and remittances startups active across Africa and 31 in Nigeria alone. Mergers, acquisitions and – alas – closures are necessary and inevitable as space evolves.

“There has been a long period of innovation and entrepreneurship, but there is a lot of overlap that is not efficient,” Rossiello said.

“As companies grow or specialise, there is a need to work together for better customer service. There have been some incredibly successful innovation over the past years in the fintech space, and the complementary models that have proven traction should be working together, either through mergers or strong partnerships.”

The need to embrace complementary models in order to grow was also behind the 2016 acquisition made by MAX, according to the startup’s director of marketing and communication Ized Uanikhehi.

“MAX decided to expand its food delivery service, so we decided to acquire Easyappetite. We also brought the founder on board,” she said. “This allowed MAX to expand rapidly in the food delivery space in Lagos.”

Uanikhehi said acquisitions were a big deal for any tech startup as they are a sign of liquidity, and agreed with Rossiello that consolidation in the startup space was a good thing as excessive competition destroys value.

“Consolidations mean people are working together to solve big problems,” she said, adding that she expected more acquisitions across the sector in the coming years, especially in fintech and logistics.

Credit: Disrupt Africa

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