Reliable sources within the financial services and fintech sector claim Interswitch is in talks to acquire Konga, one of Nigeria’s major eCommerce site.
According to sources, the acquisition has reached an advanced stage with Naspers and Kinnevik AB, two of the major investors in Konga whose investment has not yielded a profit as disclosed by Kinnevik.
Naspers is Africa’s most valuable company with over 60% stake in China’s Tencent Holdings with a worth of USD114 billion which the group said it will not sell. Kinnevik is a Swedish tech investment major with over 40% stake in Konga.
Konga is in direct competition with Jumia, another general merchandise eCommerce site owned by Rocket Internet and a consortium of other local and regional investors.
In 2012, Kinnevik invested USD3.5 million into Konga. Naspers joined the fray to stage a comeback in the eCommerce business by participating in a USD10 million Series A funding round alongside Kinnevik. Other rounds were later raised by both Kinnevik and Naspers. It is therefore clear that Naspers and Kinnevik are the major owners of Konga.
The value Konga will be sold for cannot be determined at the moment. However, Kinnevik disclosed earlier this year that it did a writedown to the value of its investment in Konga to USD13.8 million. Kinnevik has the highest stake in the business, a position that gives it the upper hand in the negotiation process.
An analyst who spoke to PageOne.ng on anonymity said Konga might be sold for estimated amount of USD90 million.
As for Jumia, Rocket Internet has sold major stakes to Goldman Sachs, MTN, Millicom, Orange and French insurance major, AXA. Going by its last portfolio value, LPV, Rocket Internet disclosed that its stake in Jumia, formerly Africa Internet Group, AIG is around 28.4%.
As opposed to a conservative Kinnevik, Rocket Internet valued Jumia (AIG) at USD1 billion when it was selling further stakes to its co-investors in 2016.
As a result of a major disagreement between Rocket Internet and Kinnevik, both companies have started exiting assets that brought them together. Rocket Internet has sold off all its major stake in Rocket and it is looking at selling out more stakes in individual ventures of the latter.
Why sell Konga?
However, Konga and Jumia have faced the roughest year from 2016 till date since their 5 year sojourn in Nigeria’s business landscape. Apart from trying hard to build an eCommerce culture, scepticism and stereotype in the market as regards Internet transactions, they were badly hit in Nigeria’s first ever and worst recession in 20 years.
While Jumia has a more bullish investor with more aggressive backers, Konga’s investors are value-driven looking at the business environment from a more realistic standpoint. The last time Konga raised fresh capital was in 2014. For a startup that burns cash faster than other businesses, the stoppage of fresh rounds shows its current investors are weighing their options on possible exit or a dilution of their stake.
With the recent apathetic posture of Kinnevik and Naspers towards the Nigerian startup scene, the former scenario might play out.
Naspers is one of the most battered tech investors in the equation. The company has not been able to make a success out of all its investment into the Nigerian eCommerce landscape. From Kalahari, Dealfish, Mocality and even its failed attempt to push WeChat in Nigeria, the company has over the time made huge losses in its investment cases across the board. OLX its last bet in the market is now cutting costs to show a path to profitability, there is no guarantee if it would do so in the next three to four years putting into consideration the huge capital sunk into marketing, technology and human capital.
The Tencent Holdings’ success story of a mere USD33 million that grew into USD114 billion is now making the company a victim of its own ‘one-hit wonder’.
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To get some cash back into its coffers, Naspers has made a bold exit and indeed some rewarding ones outside Africa. Earlier this Naspers alongside Tiger Global sold Souq.com, the largest eCommerce company in the Middle East to Amazon for USD709 million. It was a resounding success for the company. However, Naspers shocked the world late last month when it announced that it was shutting down Markafoni, its Turkish eCommerce startup that has not turned profit since 2010
So analyst polled by PageOne.ng concurred that elling its stake in Konga at a relatively higher valuation despite the company’s current shape will be a breakthrough for Naspers.
Why buy Konga?
Interswitch is Nigeria’s largest payment processor and financial services provider with its own card products and mobile money unit. The company planned an initial public offering, IPO, which was later shelved after foreign investors showed initial apathy towards it, complaining about Nigeria’s Forex drought and lack of transparency in the market.
The acquisition of Konga if it eventually works out will be a major diversification point for Interswitch. The company enjoys a near-monopoly in the payment processing business, the situation will be different for eCommerce where it will contend with Jumia, with MTN Group, Orange and other blue chips as investors.
Wole Ogunlade (Digital Business Transformation Expert) and Head of Digital Strategy at VoguePay.com noted that:
“One thing is clear, the leadership at Interswitch are poised to remain relevant by using digital transformation initiatives to improve their competitive edge even, as its market is being disrupted by new players and global competitions”.
“If you look at this development in that light, one can easily see that Interswitch’s acquisition of Konga is strategic as it will allow it to diversify in the wake of competitions to its vertical business i.e payment. Right now eCommerce is arguably a good niche as it is a major driver of online payment in Nigeria. This means that Interswitch can eat a piece of the pie to increase its volume of transaction flow”.
“This proposed acquisition will be part of a grand move by Interswitch to control the entire payment and lifestyle value chain in Africa when you understand that Interswitch is putting its hand in several verticals including “buying” a bank in East Africa, and its other strategic global partnership ambitions”.
There are key advantages for Interswitch should it acquire Konga. It will use the opportunity to consolidate its grip on the payment processing business and get revenue from a major eCommerce company using its backbone to process payment. It would be recalled that Konga has invested in its own epayment platform called KongaPay after it acquired Zinternet in 2015. The proposed coming of Interswitch to take over the business might see a total spinoff of KongaPay as a multichannel payment platform or a likely merger with Quickteller, Interswitch’s own payment platform that has gannered more customers than most players in the market.
Since we published the story, neither Konga nor Interswitch has officially denied or confirm the rumour. However, TechCityng.com claimed in a report that Shola Adekoya, Konga’s CEO addressed the company’s staff to deny the rumour.
We will keep you posted.