THUR 07 APRIL, 2022-theGBJournal| Renaissance Capital team attended different conferences and networking events over the past month.
At Finovate Europe in London, they were surprised at how mainstream open banking has become given the number of pitches in this area. At Quona Capital’s networking event, valuation pressure was topical and according to them in note to theGBJournal, they learnt that big funds are getting more selective for new exposure and telling their portfolio companies to extend cash runway for as long as possible, till at least late next year, given heightened risk of delayed IPOs. The fund also hosted a webinar on Egyptian fintech, where its founder described Egypt as “the Brazil of Africa”.
Elsewhere, they were busy with results calls, assessed what Equity Group’s fintech business could be worth, assessed efinance’s working capital dynamics, got updates on GTCo (and the Zelle-like payments solution coming up in Nigeria), and on Access and ETI’s fintech plans. In this note, we highlight the recent IPO of Egyptian mass transit and shared mobility provider Swvl via a Special Purpose Acquisition Company (SPAC) deal and assess trends in the implied valuations of listed fintech and mobile money operators.
Fundraising at a three-month high
In March, African start-ups raised c. $712mn (up 14% MoM and 114% YoY) across 99 deals (up 50% MoM and 13% YoY). YtD, this is c. $1.8bn vs c. $729mn in 1Q21 (up 148% YoY), with deal count rising 56% YoY to 256 Fintech is ~ 40% of the YtD raise, followed by retail and logistics at 14% and 12%, respectively.
While the big four – Nigeria, South Africa, Egypt, and Kenya maintained their stronghold, accounting for c. 84% of YtD funds raised, we observed notable declines in YtD fundraising by South African start-ups, and notable increases in Ghana and Tunisia (both increased by 23x and 138x YoY, respectively).
Lighting the SPAC
Dubai and Egypt-based Swvl, which provides a tech-enabled ride-sharing platform for users, recently started trading on the Nasdaq (initial plans were announced in July 2021) after its combination/merger with a female-led SPAC – Queen’s Gambit Growth Capital. Swvl’s IPO happened in choppy markets affected by a range of issues including the anticipated and/or actual increase in interest rates, which has triggered a substantial sell-off in tech stocks globally since 2021, geopolitical risks in the CIS region, and increased scrutiny by the US SEC of SPAC combinations following a number of disclosure issues. Prior to its SPAC listing, Swvl’s IPO plans had suffered some setbacks, with some investors pulling out of the transaction – which is not uncommon with SPACs. While Africa has over 20 stock exchanges, African-listed SPAC deals are non-existent, although we have seen some African and frontier market-focused (FIM Partners and Consilium) SPACs emerge.
A dearth of SPAC-related regulation(s), low liquidity and low investor sophistication are some reasons behind the absence of SPAC listings on African exchanges.
‘’However, we have seen some exchange regulators, for example, in Nigeria make moves to establish appropriate SPAC regulations, while some African investors are mulling the idea of listing an Africa-focused SPAC,’’ RenCap said.
SPACs are typically formed without a commercial/revenue generating operation in place. They are usually established to raise capital through an IPO or to acquire/merge with an existing company as a way of sidestepping stiffer regulatory scrutiny of traditional IPOs. They typically have between 18 and 24 months to complete an acquisition or merger with an identified target, lest they liquidate, for example, return funds to investors.
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