Africa represents a new frontier for tech dealmakers | White & Case LLP

The continent’s growing population is generating a wealth of investment opportunities as demand for digital services accelerates.

The technology, media and telecommunications (TMT) sector has been a major driver of deals in Africa since the pandemic, posting the highest overall value of any sector on the continent over the past three years.

Activity has been just as strong this year, with nine deals worth a total of $2.9 billion, showing the highest quarterly value in just over two years.

M&A Activity: Top Sectors by Value 2021 – 2024 (YTD)
Target location: Africa Location of the bidder: Global Sectors: All sectors

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Beginning July 1, 2023, the underlying M&A market data supporting M&A Explorer has been consolidated with Dealogic data to produce an even more complete picture of the M&A market. M&A Explorer comments published before July 1, 2023 may reference data that does not reflect this consolidation.

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And it is investments in the region’s technology sector that are expected to propel regional mergers and acquisitions to new heights in the coming years. Africa has the youngest and fastest growing population of any continent, with increasing pressure for digital services, particularly in the areas of financial technology and e-commerce. These industries are becoming major growth poles, and the continent’s lack of digital infrastructure and a large unbanked population leave a significant investment gap to fill.

Mobile money attracts investor interest

Investment in Africa’s thriving fintech sector is increasing as companies scramble to reach the region’s mostly unbanked population. The problem is widespread, with only 43 percent of sub-Saharan Africa’s population having a traditional bank account, according to the International Monetary Fund.

Mobile money services are emerging to allow people without a traditional bank account to access financial services. Africa’s rapidly growing digital population presents a huge opportunity for businesses and investors looking to enter this largely untapped market, with 4G adoption in the region expected to more than double over the next five years.

The trend has sparked the biggest fintech deal in recent years: Mastercard’s acquisition of a minority stake in MTN Group Fintech, the digital payments division of Africa’s largest mobile network provider. The partnership, valued at $200 million, will pilot the deployment of its mobile money payment system in 13 African markets.

Investors are also looking to acquire a share of the region’s fintech ecosystem. A recent KPMG survey found that almost two-thirds of lenders, both domestic and international, expect their company’s interest in fintech assets in sub-Saharan Africa to increase over the next two years, of which 11% anticipate a strong increase.

In a major bet on fintech in North Africa, Egypt’s MNT-Halan has secured US$200 million in funding from Abu Dhabi’s Chimera Investment in exchange for a 20% stake in the company. Founded in 2018, MNT-Halan offers microfinance lending and payment services to Egypt’s unbanked population via a digital platform. The investment, announced in February 2023, propelled the startup to unicorn status.

Growth-oriented mobility fintech

Fintech also holds enormous potential for disruption within the automotive industry. Mobility fintech is emerging as a rapidly growing segment within the broader fintech market, using data to offer financing solutions to increase vehicle ownership among ride-hailing and delivery app drivers .

Nigerian startup Moove offers a digital vehicle financing service aimed at boosting vehicle ownership in emerging markets. Considered Africa’s leading mobility fintech, the company has recorded significant growth, with services now reaching over 20,000 customers across six markets.

In the largest TMT fundraising so far in 2024, Moove completed a $100 million investment round in March. The investment, led by Uber and including Emirati sovereign wealth fund Mubadala, comes as the startup plans to expand into 16 markets around the world.

The growing use of electric vehicles is at the heart of Moove’s strategy, which currently operates electric vehicle fleets in the UAE and the UK. This is a major attraction for Uber, which has committed to implementing a zero-emission fleet by 2040.

The gap between vehicle ownership and population growth in Africa offers vast potential for investors. Nigeria alone has around 40,000 vehicles to serve 200 million people. As a relatively new but rapidly expanding fintech disruptor, the journey is just beginning for mobility fintech.

Retail Disruptors Are Poised for Expansion

Market players are working to consolidate their position in Africa’s growing B2B e-commerce sector. In December last year, Kenya’s Wasoko and Egypt’s Max AB, two of Africa’s leading B2B e-commerce companies, announced plans to merge in a deal that would create a dominant e-commerce serving multiple markets across the continent. Wasoko and Max-AB connect underserved small merchants with wholesalers, allowing retailers to replenish their inventory via a mobile app.

Wasoko founder and CEO Daniel Yu said the new entity would explore other M&A opportunities to drive growth after their merger.

Although the terms of the deal have not been announced, the merger of equals agreement highlights the growth potential of Africa’s informal retail sector, which, according to the Boston Consulting Group, represents more than 70 percent of food, beverages and personal care products. offered to consumers across the continent.

As such, the sector is ripe for digital revolution, with several technology startups focused on offering solutions and empowering local SMEs.

Outlook: take it to the next level

As they mature and scale, burgeoning African fintech and e-commerce startups will become increasingly attractive to private equity players, both domestic and international, with activity expected to grow on the continent in the coming years.

Negotiators seeking to capitalize on the region’s untapped potential must remember that there are challenges ahead. The continent is not homogeneous and each market presents its own tax, legal and regulatory frameworks. Intra-regional and international buyers will need to clarify these disparities to successfully push through deals.

But as is often the case, market challenges can also present opportunities. Nigeria’s low vehicle ownership figures, for example, highlight the enormous potential for fintech to disrupt the sector and drive economic growth. Growing consumer demand, coupled with insufficient digital infrastructure on the continent, offers a wealth of opportunities in booming segments such as mobile money, mobility fintech, e-commerce and intelligence artificial. These market drivers are expected to provide tremendous momentum for technology dealmaking in Africa in the months and years to come.

(See source.)

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