Two of Africa’s largest B2B e-commerce platforms, Wasoko and MaxAB, have finally completed the continent’s much-talked-about merger, TechCrunch has learned. The all-stock transaction, both companies say, marks “an evolution from B2B e-commerce companies to a multi-vertical ecosystem for Africa’s $600 billion informal retail sector.”
Talks of a merger between Kenya-based Wasoko and Egypt-based MaxAB began last December. This merger, the first of its scale on the continent, involved integrating 16 subsidiaries across multiple countries, Daniel Yu, co-CEO of the combined entity, told TechCrunch in an interview. Given this complexity, the eight-month timeline is not unusual in the context of global mergers.
Tiger Global, Silver Lake, Avenir, and British International Investment are some of the high-profile investors who collectively invested over $240 million in Wasoko and MaxAB before this merger.
Wasoko and MaxAB act as distributors for small mom-and-pop shops across Africa, with some financial services attached, and initially served traditional retailers in eight markets. However, they’ve scaled back to five markets: Egypt, Kenya, Morocco, Rwanda, and Tanzania. This retrenchment reflects a broader trend among B2B e-commerce companies across Africa, many of which have scaled back operations, pivoted, or closed due to cash shortages and changing funding landscapes.
Despite the challenges, the merger presents a bigger pie for the companies. Independently, Wasoko and MaxAB were two of the largest B2B e-commerce companies based on metrics like GMV and merchant base. Although both companies declined to share updated GMV figures (Wasoko, for instance, made $300 million GMV in 2022), the newly formed entity claims to have the continent’s largest network of B2B informal retailers, with over 450,000 merchants. Based on my conversation with Yu, a little over 200,000 might be active across both platforms.
“In line with the shift in focus on what’s important or not, we’ll decline to state specific GMV; however, what I will emphasize is that we are now making a net contribution margin or net profit per order, which wasn’t the case in the back in the day in the GMV maximizing period,” Yu noted about the company’s profitability gains.
Yu’s remarks echo a trend among startups today: prioritizing profitability. Wasoko and MaxAB—currently working on a unified brand name for the combined company—hope to achieve that goal by scaling their fintech offerings, which offer higher margins than the core commerce business that initially defined both companies.
B2B e-commerce companies have long argued that serving mom-and-pop shops is a moat to providing financial services, unlocking additional and more profitable revenue streams. Wasoko and MaxAB separately offered some of these services, including e-payments, credit financing, and digital services top-ups. In the merged entity, stand-alone business units will now manage these services, which the companies have received licenses to offer, providing them through a unified app alongside their core commerce services.
Egypt is the group’s largest market in that vertical, and those services generate more sales than its e-commerce transactions, which amounted to over $180 million last year. In addition, the combined entity has provided over $20 million in merchant financing, launched within the past year, with a repayment rate of over 99%. The companies project that the revenue from the fintech services will more than double year-on-year by December 2024.
My conversation with Yu, who runs the combined entity alongside Belal El-Megharbel of MaxAB, details what the merger means for both companies, the new synergies formed as a result, and the combined entity’s future expectations.
TC: Is this a merger of equals, or is there a dominant player in the deal? I recall reporting that there was supposed to be a 55/45 split. Can you confirm or provide more details on that?
DY: It’s absolutely a merger of equals. The commercial terms we agreed on reflect that, as the cap tables and shareholder base were merged nearly 50/50.
Got it! In terms of valuation, what should we make of both companies’ value in light of VNV Global’s markdown, which is the most recent attribution to what any of the companies are currently worth?
For private companies like Wasoko and MaxAB, since we haven’t raised any new investment since our last round in 2022, there hasn’t been an independent valuation to determine the current market value of our shares. When investors adjust the book value of their stake in Wasoko, for instance, based on off-cycle decisions — without any actual buying or selling of shares — it doesn’t materially affect the day-to-day operations or value of the company. As the CEO and a lead shareholder, I’m not giving up any equity or receiving any new funds, so these changes don’t matter to me. That would be how I would describe and explain that situation and how we practically look at it.
Fair enough. However, I’d say valuation matters when bringing together investors under the new entity. Shouldn’t a benchmark or reference point be used to determine the value of shares investors will hold in the combined company?
In practice, the swap or conversion ratio between the two companies matters for us in the transaction. For instance, if the agreement is a 50/50 split, and one company has 10 million shares while the other has 5 million, the process involves combining these shares to equalize their value in the new entity.
So, we can decide that this results in a new combined company with 20 million shares, where shares from both companies are now equivalent. The actual share price, whether $70 or $100, doesn’t factor into the calculation. The focus is on the conversion ratio, not the current share price.
You mentioned that neither company has raised any money since 2022. However, sources have told me of the new entity’s plans to do so, which is proving tricky since B2B e-commerce right now isn’t as sexy to investors as it was two years ago. My guess is the growth of the fintech vertical is to prove diversification and become more attractive to investors.
To answer different parts, we’re not actively raising money right now, but we are looking at raising money in the future on our path to long-term growth and profitability.
But what you’re reading into on the fintech side is correct. Both companies started as pure B2B e-commerce platforms, catering to small mom-and-pop stores. Early on, we recognized that this couldn’t be the end game because e-commerce, while high in volume, is low-margin, operationally complex, and requires significant investment to achieve profitability.
The real value we’ve created isn’t just in selling millions of dollars’ worth of goods like rice, soap, or sugar. It’s digitizing and onboarding over 200,000 mom-and-pop stores into our app and physical network, allowing us to provide services like free next-day delivery and cash pickup.
For example, in some of our markets, we’re making deliveries on behalf of Jumia and Amazon through the logistics network. This online-offline network embedded in local neighborhoods is the core value we’ve built, and we’ve proven this by successfully adding additional value-added services on top of it.
At least for the next year, our primary focus is expanding our fintech offerings across existing markets. Our e-commerce operations are already profitable in most markets, with a profit per delivery.
Which markets are Wasoko and MaxAB profitable in? Also, describe the margins and blended take rates across these regions.
I won’t quote the exact figures because they fluctuate weekly and monthly. However, we’re currently e-commerce operationally profitable in three of the five countries we operate in, and we expect to achieve profitability in the remaining countries by the end of the year.
Regarding operations for the combined entity, what has changed from when the companies were independent players?
We have nearly 4,000 full-time employees, most involved in local operations, including warehouse management and other on-the-ground tasks. The main impact of the merger was on central back-office roles due to overlapping functions, which led to some difficult decisions and centralization. Realizing synergies in this manner is pretty standard in merging companies.
That being said, on the growth side, we are excited about new revenue streams and opportunities that can be unlocked by our expanded Pan-African footprint, such as the cross-border procurement business we started, which speaks to intra-African trade and exports. We’re trying to source products directly within our operations and sell them across different African countries, leveraging our extensive network. A good example of this is tea. Egypt imports over 90% of its tea from Kenya, but our platform in Egypt currently sources it from importers and local distributors, even though it originates in Kenya. Since we have strong connections and operations in Kenya, it makes sense to source directly from there.
The other thing that complements this is that both companies already had quite sizable private label operations, where we were already doing some of this contract manufacturing for different products locally. While we haven’t yet expanded this to a cross-border scale, the merger allows us to explore these international opportunities.
That’s interesting. Still on cross-border synergy but from a different perspective, which has to do with the health of both businesses. From the outside, it’s hard to imagine how two loss-making businesses, especially in your industry, can combine to turn a profit.
I think this is where the point on the central or back-off synergies should not be understated because the reality of both businesses was that we were very close to profitable e-commerce operations on a stand-alone basis.
Both companies were losing money mainly due to overhead costs. The merger allows us to combine these costs, resulting in significant immediate savings. By combining overheads, we’ve significantly increased the efficiency of these fixed costs, leading to better proportional profitability. While we’re already seeing some benefits from our larger footprint and new opportunities, these gains are still small and will take time to materialize fully.
And forward-looking, what should we expect from the combined entity in the B2B commerce space, particularly now, when there isn’t much enthusiasm about it?
I’d like to step back and speak to the broader African tech ecosystem because I think that’s the more representative context of the funding slowdown and investor activity.
In that context, further consolidation is very much in the cards. I would back that up with a theoretical framework from my market view. We’ve reached a point where to be competitive as an investment opportunity on the global landscape, you need to have not just scale but also a diversified risk in the asset you’re offering.
Especially in the current climate, where global capital is scarce, you must do more to stand out. Being in one country or vertical might not make you an investable asset or get the return at a venture scale that you or your investors ultimately desire.
To unlock the full potential of the African markets, we will require more of this kind of hyper-local startups coming together. We tried to do it alone in Senegal and Côte d’Ivoire back in 2022 and ultimately shut that down in 2023, not because the customer opportunity or pain point wasn’t there, but because the operations that are required to build out both businesses properly require that deep local expertise and experience, and we realized we were lacking at the time. That opened us up to M&A with MaxAB to grow the business and expand to achieve a true Pan-African footprint.
