Last week, the African Internet startup scene received the news that Rocket Internet, owners of Jumia are looking to cash out of the venture via an initial public offering, IPO, later this year.
While the news was met with mixed feelings by stakeholders in the industry, there are possible outcomes for the planned IPO that will have intended and unintended consequences of the African Internet startup scene.
Rocket Internet would get something small out?
For sure Rocket Internet wants out in the Jumia business and it will surely get it should it go ahead with the IPO. There is no certainty as to how much it would get out of the sale. It is not also certain how much it will set for the price per share but with less than 24% left in its stake in Jumia, Rocket might get something reasonable. Bear in mind that the company sold out its major stake in Jumia to other investors when its valued Jumia (AIG) at $ billion, so the company had made decent returns in the ‘glory days’.
Jumia is not a unicorn
If you recalled that Rocket Internet had in 2016 valued Jumia at $1 billion, you would then realise that we will be in for a shocker with a revised valuation which would be far much lesser than the 2016 figure. According to the people with the knowledge of the IPO, Rocket is offering for sale a total $275 million worth of shares, it is likely the company will be selling new shares and that would allow it to sell off its stake. However, the valuation will be a big deal for the IPO to get serious traction.
Investors might not be excited
For a company with over EUR95 million in debt to date, it will not be surprising if investors are not too excited about its IPO. There is no roadmap to cutting losses despite the company’s sell-off of some of its dead-weight unit such as its property eCommerce site, Jumia House. Firstly, the company has turned a profit in almost six years of its existence. While this does not mean it cannot, its strategy has not shown that it is on that path.
Some blue chips might also exit Jumia
Part of what made Jumia (formerly a holding company called AIG), an attractive investment vehicle was its coterie of bluechip investors who were mostly of French origin. From the likes of AXA, Orange, Millicom, MTN, CDC and Tigo; there is, however, no guarantee that all of them would stay after the IPO. The likes of AXA and CDC might stay put as Jumia is their most glaring tech startup investment in Africa and a sell-off might mean they are no more exposed to the market.
Expect further sell-off of units
Should the IPO pull through, new shareholders might push for a further streamlining of Jumia’s focus. In its glory days, Jumia had dabbled in almost anything that can be sold online. Being a public company would mean more scrutiny to its strategy and how it can emerge out of its loss-making adventure. From its latest mobile report for 2017, Jumia said its most active segment is the mobile and consumer electronics unit, that might be the pointer to a way forward.