Africa’s startups witness surge in mergers, offering sustainable growth

In recent years, mergers and acquisitions (M&A) have emerged as the primary exit strategy for startups, with founders increasingly eyeing this path as a means of realising the value of their ventures.

Africa’s startup ecosystem has witnessed a notable surge in M&A activities, with South Africa, Egypt, and Nigeria leading the way.

The acquisition of Paystack by Stripe in 2020 also ignited M&A activities in the fintech space in Nigeria. Other sectors have also seen smaller yet significant mergers and acquisitions, such as the acquisition of Lynk by EdenLife, Autochek’s acquisition of KIFAL Auto, CoinAfrique, and most recently, a majority stake in AutoTager.

In Q1 2023 alone, seven M&A deals took place in the African startup ecosystem worth over $710m. In comparison, only two startups have exited through an initial public offering – the other common form of exit for startups worldwide – since 2019. E-commerce platform Jumia was the first, listed on the New York Stock Exchange, while Egyptian fintech Fawry went public on African soil.

The question arises: What are the underlying causes of this trend, and is it becoming the new normal for African startups?

The funding environment in Africa

M&A in the startup world can take different forms, each with its own unique drivers and objectives.

One scenario involves a startup acquiring another company in a foreign market to facilitate rapid expansion and market penetration. This has been the case recently for the Tunisia-founded expense management software company Expensya, which was bought by its Swedish counterpart Medius on a “9-figure acquisition,” according to the press release.

Horizontal M&As occur when two companies operating in similar markets merge to consolidate their positions. Conversely, vertical M&As unite businesses that previously engaged in transactions, such as a manufacturer and a distributor.

Another motivation for M&A activity is the desire to overtake or neutralise strong competition, leading to the adage, “If you can’t beat them, buy them.” Startups may also opt for acquisitions to fast-track product development by acquiring early-stage companies and bypassing the initial stages of innovation.

Although the African startup ecosystem is centred around technology and innovation, it remains fundamentally a business environment.

In the face of competition, businesses either acquire their rivals to eliminate competition or collaborate to expand market share. This prevailing mindset and the business-first nature of the African ecosystem suggest that M&A deals will continue to shape its landscape.

Source: African Business

002