The $288 Million African Exit

The decade of 2000 was the decade of voice telephony. The 2010s was the decade of mobile internet. Today, we are in the decade of application utility where software systems would be used to fix frictions in sectors which are yet to be digitally transformed. Logistics, payment, lending, retail, etc would all evolve in Africa.

The entrepreneurs, the high priests of these movements, would receive higher calls, not from IPOs, but pure buyouts. Yes, exits would ramp out in Africa as founders and early investors begin to cash out. Yes, with lackluster public exchanges for technology companies, most exits would be via acquisitions.

Dubai-based Network International Holdings plc is acquiring  Kenya’s DPO Group, an online commerce and fintech platform in Africa, for $288 million.

—press release below

Network International Holdings plc (the “Company” or “Network International”), the leading enabler of digital commerce across the Middle East and Africa (“MEA”), is pleased to announce that it has entered into an agreement to acquire DPO Group (“DPO”), the leading, high-growth online commerce platform in Africa, for a total consideration of approximately USD288 million (the “Transaction”). The consideration will be almost entirely funded through the proceeds from an equity placing representing 10.0% of the Company’s existing issued share capital, USD50 million vendor consideration shares issued to Apis Growth Fund I, managed by Apis Partners (“Apis”), USD13 million consideration shares issued to the DPO co-founders, with any small remaining balance to be funded via existing debt facilities.

DPO is the largest online commerce platform operating at scale across Africa

• Rapid growth profile with revenue CAGR of c.40% from 2017-2019 and Total Processed Volume (“TPV”) CAGR of c.30% from 2017-2019. Revenues of USD16 million in 2019
• Leading e-commerce and mobile money services for >47,000 merchants across high quality brands
• Present in 19 countries across Africa with South Africa, Kenya and Tanzania representing major markets. Multiple distribution channels with on the ground presence to recruit merchants, combined with direct connectivity to acquiring banks

Strong strategic fit and growth accelerator for Network International

• Market: consolidates and accelerates our presence in Africa, the most underpenetrated and fast growing payments market in the world. Africa expected to represent c.40% of Network International total revenue by 2024 (27% in 2019), giving us an evenly balanced business in Africa across Merchant and Issuer Solutions
• Distribution and relationships: brings direct merchant and Mobile Network Operator (“MNO”) relationships, broadening our business in Africa across the entire payments value chain
• Capabilities and innovation: widens our capabilities and exposure in fast growing online payments and mobile money, enabling merchants to accept a wide range of payments methods
• Cross selling opportunities: combined incremental capabilities and solutions provide significant cross-sell opportunities to both Network International and DPO customers
• Disciplined capital allocation: acquisition expected to be broadly EPS neutral in 2022, including integration costs. Double digit ROCE within 3-4 years, and significantly higher thereafter

DPO has seen strong current trading, following Covid-19 lockdowns

• Digital and online payments market in Africa expected to grow at 19% CAGR [1] over the next five years and Covid-19 expected to accelerate this growth
• E-commerce penetration in Africa is 0.3% of private consumption, versus c.5% in the United Kingdom and c.17% in China [2]
• Following stringent lockdowns in DPO’s main market of South Africa during April:
• DPO signed c.4,400 merchants in June 2020, an all-time high
• TPV growth year-on-year was 27% in May (57% in constant FX) and 27% in June (49% in  constant FX)

Financing and structure

• DPO Co-Founders incentivised and aligned through rollover of USD13 million of their DPO ownership into Network International shares (the “Co-Founders Consideration Shares”) and a two year holding period (from the point of acquisition signing)
• Acquisition consideration to be almost entirely financed through proceeds from a 10% equity placing, USD50 million vendor consideration shares issued to Apis (subject to a three month lock-up from the point of acquisition completion), and the Co-Founders Consideration Shares, with any small remaining balance funded by existing debt facilities
• Completion of the Transaction is expected in Q4 2020, subject to customary closing conditions including regulatory and anti-trust

Simon Haslam, Chief Executive Officer, commented:

“We are excited by the proposed acquisition of DPO, the leading high-growth online commerce platform operating at scale across Africa. Africa is a vast and diverse continent, representing the world’s most underpenetrated, nascent and fast growing payments markets, where we have seen recent signs of an acceleration in those trends. DPO will further consolidate our presence in Africa, strengthen our position across the entire payments value chain and accelerate our growth. This acquisition will widen our capabilities across online, mobile and alternative payments; bring an extensive and diverse range of direct merchant relationships to our business; and provide a wider range of solutions for our existing customers. We look forward to bringing our two businesses together and welcoming DPO’s colleagues into our group. Together, we have a powerful combination to accelerate digital payments across our regions and deliver significant shareholder value.”

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