Transaction AdvisoryJune 2, 2022by fieconMergers & Acquisitions In Africa: A Case of MarketForce & Digiduka – (P2)

MERGERS

In 2021, MarketForce made a 100% strategic acquisition of Digiduka in order to enhance their value propositions to their target customers; and achieve quicker scale for their merged operations. The deal was announced in June 2021; a month before MarketForce closed their pre-series A funding round of USD 2 million from a group of venture capitalists and angel investors. What makes this acquisition outstanding is that it happened between two startups in Kenya; as contrasted to the large foreign corporates led M&A deals that are typical across Africa.

MarketForce was launched in 2018 as an end-to-end retail distribution platform for consumer brands in Africa. In 2019 MarketForce contracted Fie-Consult as their transaction advisors for their seed round fundraising. The seed round was closed in May 2020 at USD 500,000; with USD 350,000 raised from angel investors and USD 150,000 from Y Combinator. By December 2020, MarketForce launched RejaReja; a platform that helps retail merchants in the informal sector to buy and sell consumer goods and digital financial services.

On the other hand, Digiduka was launched in early 2020, after being formed and funded with USD 100,000 pre-seed funding through the first cohort of the Antler program in Nairobi. Digiduka was formed with a goal of digitizing payments for the informal retailers and help them to smoothly integrate into the digital economy. The startup provided a solution with features similar to Shopify including inventory management, payments and deliveries for the retailers in the informal sector.

MarketForce and Digiduka are an interesting M&A case study since they are very young startups both by their number of years of operations (less than 5 years) and by the age of their founders. Another unique attribute about both startups is that they have local founders; and they started their operations in Kenya before scaling to other countries across Africa.

In our previous article on this Mergers & Acquisitions Series we opined that one way to take advantage of the AfCFTA (Africa Continental Free Trade Area) and scale across African markets is through M&A deals for local companies. In our view, M&A deals will enhance the value propositions and the capacity of the merging entities to serve larger markets. The M&A deal between MarketForce and Digiduka puts our opinion into a practical perspective; and offers a relatable reference point for other local companies in Africa who seek to scale their businesses faster.

The two companies target the same informal retail sector with their digital technology solutions. They also have aligned objectives to digitize the sector, introduce efficiencies, enhance productivity and grow revenues for the retail merchants. The companies could have chosen to operate separately and grow their ventures across the continent. Overtime, they could have added more similar features to their solutions as they scaled and end up competing directly within the same market. Eventually, we could have ended up with two local competitors with smaller balance sheets. This would then create room for larger corporations with bigger balance sheets to come in from outside the continent and dominate their market segment.

By combining their operations through the 100% acquisition of Digiduka by MarketForce, the two entities now have an enhanced value proposition for retail merchants in the informal sector; that will propel them to scale faster. With this compelling value proposition, MarketForce closed its pre-series A funding of USD 2 million in June 2021, one month after acquiring Digiduka. Investors love business models with huge scaling potential, and MarketForce demonstrated this growth potential by its strategic acquisition of Digiduka.

In Africa, the capacity to replicate your business model in other countries across the continent is a critical factor for the large ticket deal closures. By the end of 2021, MarketForce had launched its operations in Kenya, Nigeria, Uganda, Tanzania and Rwanda. This demonstrated scalability then attracted an additional USD 40 million in Series A funding in February 2022; which was about seven months after their pre-series A funding round. The Series A funding round was syndicated by a group of additional venture funds; with those already in their cap table participating too. This signifies the confidence the initial investors have in the growth potential of the company as it ventures into new markets with its enhanced balance sheet.

The MarketForce case study forms a good basis for investors and business owners to interrogate further how M&A deals among local companies; and at different growth stages can unlock more capital for exponential growth across Africa. In our quest to demystify M&A in Africa, we seek to shine light on the activities happening in the space that are not being emphasized enough. We also seek to draw insightful lessons from the success and failures of the M&A deals being structured across the continent. The insights will then help relevant stakeholders to make informed decisions when pursuing mergers and acquisitions in the continent.

African markets are maturing from an investment point of view; if the funding flowing into the startup ecosystem since 2020 is anything to go by. We opine that the M&A activity across the continent will soon pick up too; as the funded startups and other large corporates seek to enter into new regions and boost their market shares.

Author: Jeremy Riro

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