How startups can position and benefit from global acquisition
In 2020 Beyonic, a home-grown Ugandan startup providing digital payments solutions in five countries was acquired by MFS Africa, the largest digital payments hub in Africa. In a young entrepreneurial ecosystem like Uganda where many startups are fast strapped for cash, and where the failure rate is high, an acquisition of a business like Beyonic which was founded in 2013 and dominated well on the East African market raises questions on what such an acquisition means.
Did the acquisition imply that it had failed as a company, or did its ability to get acquired say something about its high value and potential?
In his words, Beyonic founder Luke Kyohere, says the acquisition felt right, owing to a vision shared with MFS Africa on breaking geographical boundaries by providing seamless digital payments to the last mile. Already operating in Uganda, Kenya, Ghana, Rwanda, and Tanzania, Beyonic now under MFS Africa expanded its reach in 27 African Countries with over 170 million mobile wallets and over 20 million bank accounts. With MFS Africa’s recent partnership with Visa, which enables them to issue Visa payment credentials across their pan-African network, Kyohere called the partnership a new dawn for Small Medium Enterprises in Africa.
Regardless of this positive example, mergers and acquisitions are shrouded in negative bias as they often connote a loss of identity and implied failure of the startup that undergoes the process. The term acquisition more so carries such heavy bias that many acquisitions are publicly referred to as mergers when technically they are acquisitions.
Speaking during the panel discussion of four experts at the Kampala Innovation Week on the subject the process and benefits of global acquisitions, Crystal Mugimba, Senior Project Leader at Open Capital Advisor said there is a need to appreciate the context in which startups are operating in Uganda. The landscape has some benefits like a young and fast-growing but there is also a shortage of funding, unfavorable policies, and infrastructural limitations.
Therefore, while a startup may be able to enjoy success to a degree, the need for growth may require it to take the next step of merging or being acquired by a larger entity that has the capacity to overcome these challenges. A successful acquisition for a startup would result in scaling its product from having the financial, talent and infrastructural wings to go beyond their current market into new areas, said Mugimba
On the issue of how to get the best out of acquisitions, Mugimba suggested that startups need to understand that the process is meant to be a mutually beneficial relationship where the interests of two entities are catered for.
“At the table, is an investor and a startup, each with unique needs that they need solved. For the global investor, before him is a market that is too expensive to get into from scratch and for the startup, there is a need to access finance and complementary resources to achieve the desired growth,” Mugimba says while explaining that this is the perfect context that necessitates an acquisition. However, entrepreneurs need to understand clearly the terms of acquisition to avoid disappointment or unprecedented loss.
Many questions on whether to go through or not with an acquisition begin with exploring the rationale. Does it support the overall vision and mission of a startup? Do you want to acquire a new product that opens a new business line? “Often, companies agree to acquisition by others because there is an offer, or because it seems convenient and there is excitement about the Public Relations buzz it will generate, but don’t spend enough time discussing the strategic reasons.” Mugimba asks startups to reflect on the reasons and be guided by their soundness for an impactful process.
Angela Kerubo, Program Partner Micro Small and Medium Enterprises (MSMEs) at The Mastercard Foundation says the process of acquisition requires actively seeking professional legal, human resource, financial and communication support.
“Often startup teams spend a lot of time building a business maybe threatened by the M&As as they are uncertain about the future, and their place in the company. This uncertainty may lead to a panic rush out of the company, resulting in a brain drain that reduces the value of the startup. Therefore, its important to do consultation with affected teams and due diligence process with before acquisition and during the process to avoid simply ticking boxes”
Another important thing in the acquisition process is relationship building over a long period of time with enough transparency about the goals, ethics and best practices for each party. For Beyonic and MFS Africa, for instance, the acquisition happened after seven years of a relationship where the two companies supported each other in some capacity.
Kerubo said, “In seeking acquisition, startups ought to be selective about the company that they want to merge with or be acquired by. It should begin with buying into the vision of the other company.” Short of this, she notes that the future becomes fraught with clashes in direction and goals which weakens the partnership.
Sharing more insights, Paul Karungi, Founder of Zofi-Cash said, “Acquisitions are effective strategies for growing the bottom line. Companies consolidate to remove excess capacity, increase market access, acquire technology more quickly than it could be built, develop new businesses, and improve the target company’s performance. Most African startups cannot scale because of many things, but the most significant is limited capital. That capital could be meant to restructure marketing strategy or simply to empower teams to do more with ease.”
Arthur Mukembo, The Lead for Ventures at The Innovation Village, further notes that for startups to get the best out of acquisitions, timing is a key factor. Knowing when the time is ripe for an acquisition is a question best answered by the startup. However, it can use the indicator of the value it has to offer. He advises against startups rushing into acquisitions before they have built value that gives them an edge.
“Mastering the local markets well and getting a product fit increases the startup’s value which gives them better negotiation power during an acquisition and therefore better outcomes.”
To ensure that Startups are properly guided during acquisitions, The Innovation Village which occupies the role of an enabler in the ecosystem to both startups and investors provides resources like funding, accelerator programs, platforms and mentorship to startups. “We ensure that startups are built for resilience against the challenges of the ecosystem to register a success in their markets that makes them investor-ready and scalable. For investors, we offer a pool of vetted startups that are bankable and impactful in their local market as they solve contemporary and future challenges. With all these initiatives in place, we believe startups and investors can find common ground and tap into each other’s value” Samantha Niyonsaba Future Lab Lead said.