Wasoko and MaxAB, Africa’s largest B2B e-commerce platforms, have finally completed their much-hyped merger on the continent, TechCrunch has learned. Both companies say the stock deal marks “the evolution from a B2B e-commerce company to a multi-vertical ecosystem for Africa’s $600 billion informal retail sector.”
Discussions about the merger between Kenya-based Wasoko and Egypt-based MaxAB began in December last year. The merger, the first of its kind on the continent, involved consolidating 16 subsidiaries across multiple countries, Daniel Yu, co-CEO of the combined entity, told TechCrunch. Given the complexity, an eight-month timeline is not uncommon in the context of a global merger.
Both companies operate as distributors for small mom-and-pop stores across Africa, with some financial services included, and initially served traditional retailers in eight markets. However, they have since scaled back to five markets: Egypt, Kenya, Morocco, Rwanda and Tanzania. The reductions reflect a broader trend among B2B e-commerce companies across Africa, many of which have scaled back, reoriented or closed their operations due to cash shortages and changing funding environments.
Despite the challenges, the merger is bringing greater benefits to both companies. Wasoko and MaxAB were the two largest B2B e-commerce companies, respectively, based on metrics such as GMV and merchant base. While both companies declined to share their latest GMV figures (Wasoko, for example, earned $300 million in GMV in 2022), the newly formed company claims to have the largest B2B informal retailer network on the continent, with more than 450,000 merchants. According to conversations with Yu, there may be about 200,000 active on both platforms.
“I won’t get into specific GMV numbers as the focus shifts to what’s important and what’s not, but what I will emphasize is that we are now driving net contribution margin or net profit per order, as opposed to the past when it was about maximizing GMV,” Yu said, referring to the company’s increased profitability.
The statement reflects the trend of today’s startups: profitability first. Wasoko and MaxAB, which are currently working on a unified brand name for the combined company, hope to achieve that goal by expanding their fintech offerings, which offer higher margins than the core commerce business that originally defined the two companies.
B2B e-commerce companies have long argued that serving small stores helps them provide financial services, creating additional and profitable revenue streams. Wasoko and MaxAB separately offered some of these services, including electronic payments, credit finance, and digital service top-ups. The independent business unit in the merged entity will now manage these services, and the company is licensed to provide them through an app that is integrated with its core commerce services.
Egypt is the group’s largest market in this vertical, with these services generating more revenue than e-commerce transactions, which last year amounted to over $180 million. Additionally, the combined entity has provided over $20 million in merchant financing launched last year, with a repayment rate of over 99%. The companies expect revenue from fintech services to more than double year-on-year by December 2024.
In a conversation with Yu, who will run the combined company alongside MaxAB’s Belal El-Megarbel, we delve into the implications of the merger for both companies, the new synergies created as a result, and what the future holds for the combined company.
TC: Is this a merger of equals, or is there a dominant player in the deal? It was reported that it was going to be a 55/45 split, can you confirm that or elaborate?
Daniel: It's a merger of absolute equals. The commercial terms we've agreed to reflect that, because the cap table and the shareholder base are almost 50/50.
TC: Okay! In terms of valuation, how would you value the two companies, given VNV Global's markdown? This is the most recent valuation of the two companies.
For private companies like Wasoko and MaxAB, there is no independent valuation to determine the current market value of the shares since they have not raised any new investment since the last round in 2022. For example, if an investor adjusts the book value of Wasoko shares, even if it is adjusted based on an out-of-cycle decision without actually buying or selling shares, it does not materially affect the company's day-to-day operations or value. As CEO and major shareholder, I am not giving up shares or receiving new funds, so these changes are not important to me. I will explain the situation and how I look at it practically.
TC: That's right. But I would say that when you're gathering investors in a new entity, valuation is important. Shouldn't you use a benchmark or reference point to determine the value of the shares that investors will hold in the merged company?
Daniel: Actually, the swap or conversion ratio between the two companies is important to us in a transaction. For example, if the contract is a 50/50 split and one company has 10 million shares and the other company has 5 million shares, the process involves combining those shares to equalize their value in a new entity.
So we can conclude that this is a new merged company with 20 million shares, and that the two companies are now equal in value. The actual share price, whether it is $70 or $100, is not reflected in the calculation. The focus is on the conversion rate, not the current share price.
TC: You mentioned that neither company has raised any funds since 2022. However, sources say that the new entity is planning to raise funds. This is a tricky issue, as B2B e-commerce is not as attractive to investors as it was two years ago. I think the growth of fintech verticals is a demonstration of diversification and to be more attractive to investors.
To answer your various questions, we are not actively raising funds right now, but we are considering raising funds in the future to achieve long-term growth and profitability.
But in terms of fintech, you're right. Both companies started out as pure B2B e-commerce platforms, targeting small mom-and-pop stores. Early on, we realized that this wasn't the end goal. E-commerce is high volume, low margin, complex to operate, and requires significant investment to achieve profitability.
The real value we create is not in selling multi-million dollar products like rice, soap and sugar, but in digitizing and onboarding over 200,000 small stores to our app and offline network, enabling us to offer services like free next day delivery and cash pickup.
For example, in some markets, we are delivering on behalf of Jumia and Amazon through our logistics network. This online-to-offline network embedded in local neighborhoods is the core value we have built, and we have proven this by successfully adding additional value-added services on top of it.
Our primary focus for at least the next year will be to expand our fintech offerings in existing markets. Our e-commerce operations are already profitable in most markets, with a profit per shipment.
TC: In what markets are Wasoko and MaxAB profitable? Also, explain the margins and blended take rates across the region.
I won't quote exact figures because they fluctuate on a weekly and monthly basis, but we are currently operating in three of the five countries where we operate and expect to achieve profitability in the remaining countries by the end of the year.
TC: In terms of running the combined company, what has changed compared to when each company was an independent business?
We have nearly 4,000 full-time employees, most of whom are involved in local operations, including warehouse management and other field work. The main impact of the merger was the duplication of functions in the central back office role, which led to difficult decisions and centralization. Realizing synergies in this way is quite standard when merging companies.
In terms of growth, we are excited about the new revenue streams and opportunities that can be opened up through our expanded pan-African presence. For example, the cross-border sourcing business we have launched is for intra-African trade and exports. We are trying to source products directly from our operations and leverage our extensive network to sell in various African countries. A good example of this is tea. Egypt imports over 90% of its tea from Kenya, but our platform in Egypt currently sources from importers and local distributors, even though it is produced in Kenya. It makes sense for us to source directly from there, as we have strong connections and operations in Kenya.
Another thing that complements this is that both companies already had a fairly large private label operation, and we were already doing some contract manufacturing locally. We haven't expanded to cross-border scale yet, but the merger allows us to explore these international opportunities.
TC: Interesting. It's still a cross-border synergy story, but from a different perspective, with regard to the health of both businesses. From an outside perspective, it's hard to imagine how two loss-making businesses, especially in your industry, could come together and be profitable.
I think this is where the point about central or back-end synergies shouldn't be underestimated, because the reality is that both businesses are very close to independently profitable e-commerce operations.
Both companies were losing money, primarily due to overhead. The merger allowed us to combine these costs, which resulted in significant immediate savings. Combining overhead significantly improved the efficiency of these fixed costs, resulting in better proportional profitability. While we are already seeing some benefits from the larger footprint and new opportunities, these benefits are still small and will take time to fully realize.
And looking ahead, what should we expect from combined companies in the B2B commerce space, especially given the lack of enthusiasm for it right now?
I want to take a step back and talk about the broader African tech ecosystem, because I think that's a better context for the decline in funding and investor activity.
In that context, further integration is very likely. I would like to support this with a theoretical framework from a market perspective. We have reached a point where, in order to be competitive as an investment opportunity in a global environment, we need to have not only scale but also diversified risk in the assets that we offer.
Especially in the current climate of global capital shortages, you have to work harder to stand out. Being in one country or vertical may not be an investable asset or ultimately not yield the returns you or your investors want from your venture.
To fully capitalize on the potential of the African market, we need more hyper-local startups like this. We tried to do it alone in Senegal and Côte d'Ivoire in 2022, but eventually stopped in 2023. Not because there were no customer opportunities or challenges, but because we realized that the deep local expertise and experience needed to properly build both businesses was lacking at the time. This allowed us to grow and scale the business through the M&A with MaxAB, creating a truly pan-African presence.
