Several reports released so far have shown that the Nigerian tech scene is witnessing its best year. Nevertheless, most founders and experts say more can be done. BusinessDay investigations find that many of the founders are already making merger moves.
In the past few weeks, several of these stakeholders have taken to social media platform Twitter, to express their support for big ticket mergers and acquisitions (M&A). According to them, tech startups in the country and even across Africa are too small to compete with peers beyond the continent. Mergers and acquisitions will strengthen their capacity but it will also bringing larger revenue and firm up exit plans.
Mergers and acquisitions have become a strategy tech companies across the world are using to establish their presence and claim significant market shares in their niche industry. In July alone, PayPal and PayU – two major players in the payment space – led significant mergers. PayPal invested $50 million into PPRO, a London-based business that is focused on cross-border payments for merchants, specifically by offering the merchants a seamless way of accepting payments from customers using whatever the most popular payment form happens to be in a particular country. PayU on the other hand acquired Zooz, an Israeli startup that provides an API to merchants that lets them accept a variety of payment depending on the market.
“I think there are too many startups chasing same problems in very small markets across Africa” Oluyomi Ojo, co-founder of Printivo noted in a Twitter post. “The surest way to create the kind of unicorns people seek is to merge and create big companies instead of many small companies struggling to survive and chasing a very small market.”
Collins Onuegbu, founder and executive vice chairman of Signal Alliance Limited and a serial investor, told BusinessDay that although big ticket mergers could transform the tech space in Nigeria, the challenge is that M&A service is not available for the smaller companies because large ticket deals are better for the M&A companies.
“I believe that this will however change with the growth of the funding going into startups and incumbent tech companies,” Onuegbu said.
Investigations show that some of the tech players have approached potential investors to discuss possibilities of mergers or acquisitions. While some have met with bricks walls, others say it may take longer for a deal to be finalized.
“Before our PayTv game, we offered $1 million to acquire a US channel. No deal,” Jason Njoku, CEO of Iroko TV disclosed in a post, “Offered $3 million to acquire a channel in Africa. No deal. In the end we launched across all those markets (minus US). ROK ended up turning everything upside down.”
Sources also told BusinessDay that there are on-going discussions for mergers and acquisitions involving a number of tech companies in Nigeria. One of the companies said to be involved in a merger discussion is Riby, a fintech platform that helps cooperatives and their members to remotely control both their finance and financial operations.
“The issue is not whether it is happening. The issue is that it is not happening at scale to create positive impact,” Onuegbu said.
Dotun Olowoporoku, managing partner at Start Advisory and venture capitalists believes that what is the lacking for positive impact is bold founders, long term investors and active corporates leading M&A deals.
“That is how to create value and attract the best minds to build innovative companies,” he wrote in a Twitter post.
Razaq Ahmed, co-founder of CowryWise, a fintech company which was recently admitted into Y Combinator accelerators programme, told BusinessDay that M&As are not “silver bullets.”
He says more emphasis should be placed on collaborations and partnerships to deepen the growth in the tech space.
“Companies operating in different verticals can collaborate to broaden the overall value propositions for customers,” Ahmed said.