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How Apis prepared DPO for landmark sale to Network International

After taking investment from Apis Partners, a private equity firm, in 2016, DPO, a digital payments company, grew rapidly. It went from processing about $50 million annually to $2 billion and expanded to 19 countries from only two countries prior to the investment. It had also grown its merchant base to 100,000 from only 8,000. In this interview, Matteo Stefanel and Rotimi Oyekanmi of Apis Partners take Lolade Akinmurele, Business Day’s Deputy Editor, through the journey with DPO that started in a mid-sized conference hall in Cape Town, South Africa, to the eventual sale of the company to Network International, one of the Middle East and North Africa (MENA)’s biggest payments processor.

When did Apis invest in DPO and what was the attraction then?
Matteo: It’s been such an interesting and a great story for us, a great adventure with the DPO founders and the company itself and all the consolidation of the payment space in Africa.
Whether organically or by acquisition, this was a business that from the very beginning, we thought could grow very fast and could be a champion in Africa for online payments and digital payments.
We had a number of reasons why we thought that investing in DPO was worth it.
The first reason was that, generally speaking, around Africa,; the high-speed internet connection has been coming live, as you know, and the last mile to home penetration has increased massively over the past five years which means that internet speeds, generally, all around the continent, have increased over the past five years.

The consumer’s use of mobile device as well as access to internet and online shopping has increased enormously. And of course, DPO is almost entirely focused on online shopping, digital payments and increasingly, merchants, I should say, having taken over DPO services also for their offline work. The difference between online and offline has become increasingly less as the business has been growing both online and offline. So, today, DPO is processes the transactions of approximately 50 airlines. This is by far the largest number in the continent, in fact, globally actually. I think it’s the largest, they are all smaller airlines but it’s still 50 airlines.

DPO processes big brand names that you would recognize throughout the continent and that is testament to what they’ve built.
But it is also testament to the desire of the young consumers to increasingly get the services that they desire: to be able to pay for cinema tickets, airplane tickets, their Takealot deliveries, wherever there’s amazon, they want to be able to access these services in full. This is what DPO does. DPO allows you to pay using cards, but also using your mobile wallets.
I mean, you can use such a huge number of payment methods.

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Matteo: Basically, DPO is the leader throughout Africa in terms of number of merchants, number of online merchants; it operates in 19 offices with over 300 employees. It has a relationship with over 50 banks to process transactions for them and 7 mobile operators; all the main mobile operators in Africa.
It plans to be in 30 countries by 2022. So, it’s a very serious player and with significant value proposition to its customers.
DPO wasn’t like this in the very beginning. Today compared to 2019, it has doubled its merchant base from 50,000 to approximately 100,000 merchants. The names you would recognize are Uber, Airtel, Kenya Airways,, Takealot, Jumia Travel, KFC, Shell, and Expedia.
So, these are the names of international and regional champions with a very low concentration by revenues. It’s extremely high-quality business being created with over $2bn of processing value. These numbers mean a lot I think that’s what means the most to us.

In 2015, Apis Partners discussed the type of Payments Company we want to back in Africa. We wanted to build a regional champion and we realised it was going to be a lot of work, we realised that the payments ecosystem in the continent is very fragmented and there are a lot of smaller players, but we wanted to create a champion. And that’s exactly what we did. We met a few and then we said, “Why don’t you all come over to this theatre in Cape Town that we rented.” I still remember it. It was really cool actually. There was this stage and the 50 companies and young entrepreneurs, everybody really excited. We were introducing everybody and everyone was presenting to each other and there was such energy and at the same time we were seeing who were the ones that had a real product, who were the ones that had energy to create a real business and the founders of 3G Direct Pay (as they were known at that time) came out as real leaders. Good leaders that lead by charisma.

At the same time, others were clear in terms of having great products and others were clear in terms of being a little bit tired. The founders of one of the companies which DPO later acquired had been running the business for over 20years and they were ready for a change.”
VCS was the name of the company and it was the second company we acquired under DPO.
The company CEO came from a South African bank and they ran it for 20 years and they were clearly tired and for us there was an obvious consolidation opportunity and we had consolidation opportunities of companies where the management wanted to exit or where the management of the companies wanted to stay on and so we rolled then into management and now the management of those companies is part of the top management of DPO Group.

In Cape Town, we clarified who was going to be the consolidator and how the growth path through M &A was going to proceed.
Indeed, we delivered on all of this and we made 5 acquisitions in the end over the years. So, the consolidation process worked really well and Rotimi can talk about how it was done in Nigeria as an example, although, of course, this is early days but it’s proceeding extremely well.
We also identified countries where the best path for growth was organic growth: starting a company, getting a license, getting clients. Rotimi can speak better about this.

Rotimi: We identified Nigeria, Ghana and Morocco as countries with good prospects and where we wanted to establish operations. As you would know, in the beginning, DPO operated exclusivity in East Africa and with the acquisitions the company expanded into Southern Africa. Our plan of being Pan Africa meant we had to expand into West Africa and North Africa. We started with a few major West African countries: namely Nigeria, Ghana, Cote d’Ivoire, Senegal. In these countries, we went through the operators exploring potential acquisition candidates because we thought it was better for us and was quicker to market by acquisition. But we found that either the business models were not aligned with ours, or as you probably know, when you have a small player in a big market and a fragmented market, a leader might be a small player but they all had exaggerated valuation expectations which were not reasonable. So, what we did in Nigeria, after discussions with about 15 companies we decided to apply for a PSSP license from the Central Bank of Nigeria and we are now expecting to have the final license. The delay in obtaining the final license has been caused by COVID-19.

In Ghana; as in Nigeria, we met with several players in Ghana and when we couldn’t find any player that we would fit into our plans we decided was to commence the business in Ghana. Incidentally, at the time we commenced our business in Ghana, there was no licensing regime, but subsequently, Ghana introduced a license which we’re working on securing.

We’re already operating in Cote d’Ivoire and we are at an advance stage of securing a license in Morocco. Each of the countries has its own licensing regime so we have had to understand each country’s licensing requirement to secure the required license. Today, we operate across East Africa, Southern Africa, West Africa and soon in North Africa. In summary our approach is can we acquire a business and if we cannot, then we proceed to apply for the relevant license.
We can also talk about some of the ways we have supported the business.
Matteo talked about being connected to at least 50 banks across Africa. We have been very supportive with introduction to some of the Pan-African banks and some local banks.

Matteo: The point is, DPO is by far, the largest player in the online space in Africa and what has been tremendously valuable is us being able to rely on a management team as motivated and as charismatic as the one that DPO has and for them to be able to rely on us, on people like Rotimi, myself and our colleagues to be able to deliver on both the organic and inorganic expansion.
It’s a game of numbers but numbers don’t matter unless they’re large. You need to be able to provide your clients with the ability to accept lots of payments. If you tell Uber that you can accept only accept payments in one country or provide them a service only in one country, it will not be as attractive as what we can do, which is provide them with services in 19 countries across the continent then we become a one-stop-shop solution for these international players.

It would be really useful if you could highlight clearly where DPO were before Network International came in and where they are now, just to get a sense of before and after for DPO so it becomes clearer the hard work Apis had to do to grow the company to the level it is today where it was attractive to the likes of Network
The journey itself started in 2016 when we invested and at the time, the total amount they processed was about $50 million and by the time we exited, it was just over $2 billion. I think that’s the best way to show how much it’s grown. When we invested, it was in two countries, but by the time we signed the agreement to exit, it was in 19 countries. Network International, in their presentation, said DPO had 50,000 merchants, I think we count them differently because from our view, it’s 100,000 merchants; every instance of a merchant is a different merchant, even if it’s a chain, you have a different presence, a different shop, etcetera. The growth in revenues has been in excess of 50% per year from the time we invested to the time we exited. And as I mentioned, we have done 5 acquisitions: 5 inorganic mergers and acquisitions since we invested. So, this has grown massively, the merchant base when we invested was only 8,000 compared to the 100,000 on the same base of counting. And when we invested, in terms of local workforce, it was approximately 15 people, which grew to over 300. So, this is real growth.

Network International was not the only one to show interest in DPO. What convinced you that they were the perfect suitor?
Let me start by saying we know Network International well and I have a lot of affection for the company. I saw it growing from the leading player in the United Arab Emirates into what is now- the largest payments company in the Middle East and Africa without exception. I was on the board of Network International many years ago, between 2011 and 2014, if I remember correctly, when the company I was at the time before we started Apis Partners was an investor in Network International and then I followed the growth of Network International with affection. One of Apis board members was also on the board of Network International and we have spent a lot of time brainstorming with Network international but by no means was Network International the only party interested (or keen) to acquire DPO. It was quite a contested situation at the beginning when a lot of parties called us expressing interest before we even started an official process. We got all these inbound calls, but we decided very early on that this asset, DPO, was just perfect for Network International. Network International is a phenomenal company in terms of its product suite, in terms of its African presence, but it was lacking the online payments element that DPO could bring to them. The African payments market is today, the fastest growing in the world and the fact that DPO is a 100% Africa-focused would really consolidate their exposure to this market. In terms of products, the strengths of DPO are in e-commerce, online, mobile money and account to account payments.

Whereas the strengths of Network International are all in point of sales solutions and wide label, let’s call it corporate services to banks so a very different and very complementary product suite which on one hand, Network International could roll out its products to DPO clients in Africa, and on the other hand DPO can roll out its products to Network International clients in the Middle East where Network International doesn’t have the same product suite. It’s a real geographical and product suite synergy story and that is why it was such an important transaction for them. It also brings growth, DPO is growing so fast and obviously this is going to accelerate the growth of Network International. Network International is a larger, more mature company, but with this acquisition its growth increases significantly. This is why we felt Network International would be the ideal new owner of DPO because it wants Africa and wants to focus on it. It also wants to focus on online digital payments which it didn’t have. It had presence in Africa, but not enough and this makes it by far, the leader in Africa.

Rotimi: Just to add that we had lots of inbound interest and some of these interests were from Africa, but it was very important to us to connect Africa to the rest of the world. This is a very important objective for us and that’s why you normally would look at businesses with scale that can expand to operate in multiple countries and eventually become Pan-African. This is because we want to be able to connect Africa to the rest of the world. When we looked at some of the inbound interests, we found that some of them were just Africa-focused businesses and we thought we would prefer a deal that could lay the building blocks to connect Africa to the rest of the world rather than even just operating within Africa. This is also one of the reasons why we chose Network International.

Another somewhat significant yet underrated reason that attracted and endeared Network International to DPO is the fact that it is a truly Pan African business operating in 19 different countries and with the relevant licenses. It sounds very easy when you say, “we’re in 19 different countries or we’re going to be in 30 countries in a few years.” but the rigors to secure licenses are enormous. In one of the countries we started our application for a license in 2017 and we got an approval in principle on the last day of 2019. So, it’s not easy to get licenses in different countries. For Network International, getting those licenses along with this acquisition is almost priceless because all they have to do is just plug DPO into Network International and “boom!” you’re already expanding your business across Africa.
One thing Apis has done well is to attract international strategic investors to invest in Africa. For example, we divested our remittance business Transfast to Mastercard. That’s just one of several deals we have done with a view to connecting Africa to the rest of the world.

Matteo: I couldn’t say it better. This is very straightforward for us, as long as you keep companies as a purely Africa play, you’re missing a trick. The world today is about connectivity, it’s about being able to provide services across continents and it’s for companies to be able to invest in Africa without thinking that it’s going to be different. The interest that we got for DPO and also Transfast was due to their ability to provide services in a seamless, modern, and profitable manner throughout the continent in a way that literally an International player can, as Rotimi said, plug in and just play throughout the continent. This is the main attraction. That is why, as Rotimi hinted earlier, we tend to shy away from investments that are single country. We will consider them (single-country businesses) but we tend to shy away because we do believe that, generally speaking, connectivity, both within and outside of Africa is one of the big value additions that we as a private equity investor can bring. The other value added elements are what Rotimi mentioned so our ability to help our portfolio companies to obtain licenses, to work within, sometimes, confusing difficult or time-consuming regulatory frameworks and benefit from our knowledge of how things are done in other markets so you can compare and contrast. I always give the example that the mobile money legislation in Kenya is very advanced but in India it isn’t so our ability to bring to Indian companies, the knowledge of mobile money that we have as it is in Kenya is a great value that we bring and likewise, there are different legislations whether it is agency banking legislation in India which is very advanced that we are able to bring to a country like Tanzania for people to realize how it actually works in other countries. For me, I think this is such phenomenal value added. Helping with growth doesn’t just mean helping with mergers and acquisitions which, of course, we do, but it also means helping in dealing with regulators, helping in setting up strategy, learning from other countries, helping the connectivity within and outside the continent. That is growth. That is what we see.

Rotimi: One of the things you’d see we’ve talked about is how we add value to the businesses, not just improving the governance of the businesses. And because we are sector-specific, and we understand this sector globally and are able to attract global strategic partners to the businesses. Being sector specific means that the depth of our support is not just governance but in the operations of the businesses themselves such as strategy of the businesses, what is happening in other countries, how the industry is developing and how do we prepare for the next stage in the evolution of the industry in Africa.

Matteo: It’s important that this goes out to tomorrow’s entrepreneurs so that they know this is the type of charismatic entrepreneurs that we are looking to back. Pretty much all of our companies are entrepreneur-founded and entrepreneur-managed and what we can bring to our entrepreneurs is enormous because of our specialization in financial services and in the sub-sectors of financial services like payments, credit, insurance, we know what we’re talking about and we can really help the businesses to grow to the next stage; to do as we’ve done with DPO. This is what we do. This is what we love to do, and we can do it because we only do financial services, nothing other than financial services and we love to back entrepreneurs.

How easy or difficult is it to find the right kind of companies that you’re looking to back, the ones that meet the kind of criteria you’re looking for?

Matteo: (laughing) Like all good things in life, it’s very difficult. It’s difficult not because there are few good companies out there, but because you want to find the match between ourselves and the company and entrepreneurs. You want to be able to add value. It’s like a marriage; there needs to be a good fit for it to last and be successful. This is why it takes long and it’s difficult but we are in the market, we are present, we’ve got in addition to our office in Lagos, people in Johannesburg, Nairobi and throughout our investment area beyond Africa and we meet a lot of people and organise a lot of events. So, the answer is it is not easy but it’s not for lack of opportunities, it’s because you want to find the right matches between ourselves and the entrepreneurs and the companies.”

Rotimi: I think that summarises it. If you look at the story of DPO and how we said the African online payment industry was fragmented and the need to find a champion that would lead a Pan African business, it’s the same thing you’d find in most African countries most operators have single country operators with dreams to expand across their region. Our goal is to find regional players who can expand to be Pan-African players. Therefore, one of the biggest challenges we have in Africa, or should I say Sub-Saharan Africa is that entrepreneurs usually have a tendency of not wanting to partner with each other and this is why you find most of the companies are fragmented. Where they could work together, prefer to work alone and run small businesses. This is where independent arbiters like PE funds come in and play a key role to drive consolidation. So, you’d find most of the investment opportunities we see today require scale which can mostly be achieved with consolidation. We have to bring like-minded entrepreneurs together to build a compelling business which can be attractive to global strategic investors. With Private equity generally, you’re looking for the best fit as Matteo said and looking for the best fit means you have to talk to many people especially when you have a fragmented market and find out who you think will be the best party that you can work with.
With the issue of scale in mind, there is need for entrepreneurs to stop focusing solely on maximising valuation but to also focus on value that the PE firm can create.

You said there are a lot of opportunities in the payments space, that’s undeniable. Are you looking to do any new business in that space any moment from now?
Absolutely. We love payments. Payments, in our opinion, is one of the most attractive spaces in financial services globally and in Africa. The rise of the consumer, the growth in online and offline transactions, the increase of digital payments in general and the transition from cash to digital payments is extremely strong. It’s being pushed by so many different reasons: convenience, the desire of the government to be able to monitor flows so as to tax properly on transactions and also now, more recently, COVID. Of course, digital payments have less risk of transmissions, so we think payments is going to grow even faster moving forward. So, we’ll keep on investing. To all those entrepreneurs out there, we would love to have chats, we would love to know of their business model and the particular way to crack this transition from physical to digital and to make this as widespread as possible throughout all the countries we invest in.

Rotimi: Let me give a different dimension to that. For example, Apis has classified financial services into five sub verticals – payments, savings and credit, insurance, capital markets and service providers. When you look at all of these sub verticals, you’d find that payments are like the platform that allows most of them to flourish and grow exponentially especially in Africa where the businesses are targeting the retail segment, so a good payments platform helps efficiency whether it is banking, insurance, capital markets, savings, e-commerce etc. If you look at the Apis portfolio, about 60% of our portfolio is payments and that’s because an effective payments system is a boost to all these other segments.

Matteo: Completely agree. Payments, at the end of the day, has been overlooked in its importance to provide the backbone to all other financial services and actually to all other economic activities. At the end of the day, if it’s easy and quick to pay and get paid, you need less credit, for instance, because you don’t need to bridge the time between paying and getting paid. You can purchase more. The economy grows faster and as a result, everyone benefits more – as the velocity of money increases, economic activity increases as well, and everybody benefits. Payments for us is the backbone to grow. There was a McKinsey study that analysed how much an increase of 1% in digital payments in a country increases growth and it was phenomenal, it was like a multiplier effect.

Is there any other point you’d like to touch on before we round up?
“No, we just want the entrepreneurs out there to reach out. To let us know of their businesses. We’re looking to invest $20m – $50m per investment and we love companies that are already strong, and we want to make them super strong. I think that’s the best way to put it.

Rotimi: “We’ve talked about DPO and a bit about Transfast. Let’s end with talking about Apis Partners and its AuM of about US$1b.

Matteo: At Apis, we are happy to have been lucky enough to have created a business for about 6 years that has grown from 3 people and a few more junior colleagues in London and now we’ve been blessed with the confidence or the trust given to us by or investors which include governments, the developmental financial institutions, including the CDC from the UK, the World Bank, the European Investment Bank. We have got government institutions as well as, and this is a crucial point: majority of our investors are actually institutions, they are corporate, they are banks, they are insurance companies; whether Prudential of the United States, Intesia of Italy, Bank of Yokohama of Japan.
These are the type of investors that we have. We’ve also got the International Monetary Fund pension fund, so their pension fund invests in us. As a result of that we had a first fund of just under $300m which is what we invested in DPO. We also raised a second fund at over $560m which helped us grow exponentially.

We also have a single smaller fund at the venture stage investing primarily in technology. And we’ve got a number of smaller investments that we do on a case by case basis with some of our Limited Partners (LPs) and our investors when the opportunity arises.
And as Rotimi was saying, we now manage approximately a billion dollars. Our fund 1 is performing very strongly and we’re very happy with it. DPO of course, contributed as well to that. We have 18 investments currently and it’s a great ride. We’ve got close to 30 colleagues in Lagos, Nairobi, Johannesburg, London, Mumbai, Singapore and I think we’re still having fun.
That’s great. There’s no need to fix it if it’s not broken. It’s a winning model.

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