Impacted by global economic issues and geopolitical
tensions, African companies have faced a challenging 12 months in terms of
VC-backed activity. However, for any founders considering their best route to a
profitable exit, one option has emerged as the obvious choice: acquisition.
This trend is highlighted by Pitchbook data evaluating the African VC ecosystem in Q1 2024,
which revealed that of all the exits achieved across the period, each and everyone was secured via acquisition. In contrast, no public listing or buyout deals
were completed.
According to Victor Basta, CEO and Founder of investment bank DAI Magister, African CEOs should understand
the value of M&A as a path to a successful exit, ensuring they are bought
(not sold) to maximise valuations.
Basta said: “VC funding has dipped over the past couple of years on the
African continent, with growth-stage companies seeking continued expansion
struggling to find willing investors. On the other hand, we’ve seen the African
M&A sector evolve, largely driven by a host of large overseas companies
looking to tap into a new market, diversify their client base and leverage
innovations that will enhance their offerings.
“This shift is also a result of the growing maturity of Africa’s business
lifecycle. Whereas a decade ago the scene was rife with startups at too nascent
a level of development for acquirers to consider, now there are a host of
growth stage companies that are attractive to buyers.
“Once African founders begin to appreciate the significant profits M&A
exits can yield, they can then pursue a range of tactics that will help secure
high valuations. All strategies are built on thorough and targeted preparation,
keeping in sight the end goal of being bought, rather than sold.
“The first step is identifying the right buyers to approach, who must have both
clear synergies and the financial capacity to meet the expected asking price.
This means pinpointing the appropriate pool of buyers, displaying a deep
understanding of their position within the value chain and demonstrating the
incremental value a smaller target would bring to their strategy.
“A basic M&A prep template to then follow includes conducting a strategic
review of the business, developing and evolving external positioning, refining
corporate materials to reinforce key messages, stress-testing business plans
and financial models to stand up to buyer due diligence, defining key value
risks in a deal and engaging potential buyers in stages.
“The main disadvantage for African startups to overcome is a lack of
visibility, with many buyers possessing only superficial knowledge of even
sizeable African targets to acquire. Building awareness is the key to garnering
the right kind of interest and making the most of acquisition as the
continent’s most common form of exit.”
Basta concluded: “The statistics are already outlining M&A’s credentials as
the pathway to a successful exit for African founders, but the market is still
in an early phase in comparison to other regions. As more growth stage players
emerge and overseas interest continues to build, expect to see companies that
have devoted resources into cashing in on this opportunity secure the highest
value exits.”
