There is no better way to measure the success of a technology start-up than by the size of an exit – the money buyers are willing to pay for it. For the lucky few, these can go into the billions of dollars.
Yet, while a string of local tech start-ups were snapped up in 2021, recently published financials of four listed companies reveal that all were acquired for significantly less than the blockbuster local start-up exits of years gone by, raising a question about whether big international dealmakers are staying away from South Africa.
The four listed companies revealed in recent financials that they paid between R70-million and R228-million to acquire start-ups in 2021.
- Massmart financials revealed that the company doled out R228-million for an 87.5% stake in grocery and delivery start-up OneCart in a deal concluded in October 2021.
- TFG financials showed that the company acquired alcohol delivery start-up Quench in December 2021 for R141.8-million in cash.
- Australian-listed Zip’s financials revealed that the company paid A$9.5-million in September 2021 (R103-million at the time) to acquire the remaining 74% share of local fintech PayFlex.
- Logistics company Imperial’s financials revealed that it paid R70-million to acquire a 60% stake in delivery start-up ParcelNinja in February 2021.
Yet the size of last year’s exits pale in significance when compared to those concluded in previous years, such as GetSmarter’s US$123-million acquisition by 2U in 2017, Fundamo’s $110-million exit to Visa in 2011 and Nimbula’s $110-million exit to Oracle in 2013.
The last big local deal that was disclosed in financial reports was Vodacom’s acquisition in 2019 of a 51% stake in IoT.nxt for R266-million, or about $15-million at the time.
Verisign’s $575-million buyout of Mark Shuttleworth’s Thawte Consulting in 1999 is still the biggest-ever exit by a tech start-up in South Africa.
‘Far lower’
One local start-up founder TechCentral spoke to, and who asked not to be named in this article, said many of the figures that emerged in listed companies’ recently published financial report were “far lower than the rumour mill [at the time] had suggested”.
For example, he said, it was rumoured that OneCart was sold for about R1-billion. “Given how hot the market was at the time and how well Doordash is doing in the US, it seemed plausible to me,” he said, adding that founders “don’t seem to mind having their exits overhyped because it builds their brand”.
OneCart CEO Lynton Peters did not respond to a request for comment; the business’s co-founder, Ariel Navarro, declined to comment, saying he is bound by a confidentiality clause in the agreement.
However, broker and managing partner of Benchmark International Dustin Graham cautioned about reading too much into the value of the exits.
He said the sale amount declared by a listed entity in its financials often doesn’t capture the full value of an acquisition. This, he said, could include the acquisition by the start-up company of new business or networks, which the start-up’s founders could benefit from if they still have a stake in the business.
Knife Capital managing partner Keet van Zyl attributed the fall in the number of big exits to the presence in South Africa of more venture capital funds and increased interest from international investors, which means that many start-ups can now afford to hold off from exiting for longer while they build their company.
Yet, with tech stocks sliding, those shareholders who were paid out in shares of the acquired companies may have seen a significant share of their takings eroded.
Zip’s acquisition of PayFlex was payable through the issuance of almost 1.5 million fully paid ordinary shares in Zip. Given that Zip’s share price has dived from about A$6.90 at the time of the deal to $0.50 currently, many of the start-up’s shareholders, including founder Paul Behrmann, will have lost millions of rands (assuming they didn’t sell early).
While he declined to comment on the specifics of the sale to Zip, citing confidentiality, Behrmann conceded that the decline in Zip’s share price had “negatively impacted” sale proceeds.
The Big Deal, a blog that covers African start-ups, reported recently that the amount of VC raised by South African start-ups from January to May this year had declined by 30% over the same period in 2021. Despite this, some start-ups are still looking to raise sizeable rounds of investment.
Many start-ups have chosen to hold off from exiting until global tech valuations improve
This week fintech Zapper, which has been funded by media-shy South African technology entrepreneur Martin Moshal, revealed it is consulting with EY to raise investment at a valuation of nearly $1-billion. Last month pan-African fintech MFS Africa reported that it had raised a further $100-million in debt and equity.
Ultimately, the really big money lies not locally but offshore. That’s if global investment firm Permira’s $5.8-billion acquisition in May of cybersecurity company Mimecast is anything to go by. The company was founded in the UK in 2003 by South Africans Peter Bauer and Neil Murray and listed on the Nasdaq in 2015.
According to Wallmine, an investment data company, Bauer and Murray’s net worth (based on shares held or sold in Mimecast) was $210-million and $156-million respectively as of November 2021, with the share price trading at roughly on par in May just before the deal concluded.
Locally, venture capitalist Clive Butkow, CEO of Kalon Venture Partners, says many start-ups have chosen to hold off from exiting until global tech valuations improve.
However, Van Zyl believes that with a number of local start-ups now having access to capital to scale internationally, it is only a matter of time before the country sees bigger exits again. — (c) 2022 NewsCentral Media
