The African tech ecosystem is among the world’s most binary environments. Either a startup evolves and grows, or it will fail to scale. Growth is firmly top of mind for any startup founder, with M&A a vital tool within any venture’s arsenal to do so at speed. Yet, M&A can be highly complex and fraught with difficulty.
These difficulties and the opportunities inherent in M&A were the topics of a webinar hosted by the A&A Collective on Thursday, 23 March. The A&A Collective is a global community founded by and for junior to mid-level professionals working towards the growth of the African tech and investment ecosystem.
These difficulties and the opportunities inherent in M&A were the topics of a webinar hosted by the A&A Collective on Thursday, 23 March. Joining as panellists were Naa Akwetey, Senior Vice President for Strategy and Business Development at mPharma, Roy Perlot, CFO and Co-Founder of insurtech LAMI, Frances Tyner, Director of Corporate Development at MFS Africa, and Martha Mbugua, Corporate and Commercial Partner at law firm Cliffe Dekker Hofmeyr.
The panel were asked about their most recent or exciting acquisition or one they had advised on. Akwetey gave the example of the Nigerian pharmacy chain Health Plus, which at the time of acquisition had around 90 locations spread across 12 states in Nigeria. Before this deal, mPharma had acquired smaller pharmacy chains in Kenya and Uganda.
The rationale for the acquisitions was to support mPharma’s strategic objective of expanding into critical markets, with Nigeria prominent in that thinking. Before the deal with Health Plus, mPharma operated in 5 Nigerian states, which more than doubled overnight through the acquisition. They asked themselves how the deal could grow revenue and cash flow while enhancing their social impact.
“There’s a financial aspect to it, but there’s also that impact from a social perspective because we [mPharma] are a social enterprise. Being able to reach more patients to access our portfolio of services within the healthcare space was a key rationale for the acquisition,” Akwetey said.
Enlarging their company’s footprint was a reason cited by Tyner for why MFS had engaged in M&A activity, and Perlot noted that LAMI, which is a younger enterprise compared to MFS and mPharma, had acquired a competitor that was still relatively early in its venture development journey.
The acquisition allowed LAMI to integrate the competitor’s team and commercial contracts into its own commercial flow. The greatest challenge they faced was integrating their platform and the competitor’s, with LAMI ultimately partially rebuilding what they could use from the competitor so it was ready for use on “day one”.
While technological integration is a question of engineering and technical nous, Akwetey suggested that integrating cultures, ways of work, and staff from an acquired business can be challenging. Training is an important part of the process. The fastest way to mitigate this problem is to conduct significant amounts of due diligence. In mPharma’s case, they took the initial approach of leaving the acquisitions to remain stand-alone businesses, with integration taking place slowly and deliberately.
Tyner also concurred that integration is the most challenging part of the process in M&A, hand’s down. “For us, one thing we’ve learned is that the integration starts at the same time as due diligence. As you are doing your due diligence on the asset, you have to be thinking, ‘How am I going to integrate this? What are the risks associated with integration? Who are the key people on the other side of the table?’”
These questions spoke to the trade-off that happens at the heart of M&A. As highlighted by Tyner, a company’s culture will change in some way when a new business is brought into the fold, with it imperative that the new joiners are welcomed into the larger business as peers. Simultaneously, it’s impossible to avoid an acquisition changing the buying venture’s culture in some way, with it a fact of a “growing, changing, living organism.”
As suggested by the entire panel, buyers and sellers need to pay attention to regulation and the role of regulators in specific markets. If a deal reaches a certain size or a licensed business is involved, such as in the fintech space, regulatory approval will be needed to move the deal forward.
Mbugua, having advised on these types of transactions, shared that the process can be tense, especially if regulators choose to impose select conditions on a merger which neither party has anticipated.
An example of a condition Mbugua has encountered in Kenya revolves around employment, with staff from the acquired company guaranteed employment for a period as a condition for the merger. She had also advised on a deal within the communications space that was initially declined due to its complexity, which almost led the proposed merger to collapse.
M&A transactions can be complex, expensive and tricky to execute well. Despite all that, the prediction is that we’re going to see more acquisitions in Africa moving forward. Commercially, it can be an effective growth strategy, but integrating the internal team into a new healthy culture while ensuring they’re trained in the new products acquired can be challenging. However, this integration is critical to a newly consolidated company’s success.
About A&A Collective
A&A Collective is a global community founded by and for junior to mid-level professionals working towards the growth of the African tech and investment ecosystem. The goal of The Collective is to provide a space for young professionals in the investment space to connect, collaborate and learn from each other through the private platform, as well as through virtual and in-person networking and education-related events across member locations.
The community consists of over 400 members spanning 30 countries currently represented by over 200 African-focused global firms and funds. Membership is open to anyone working below the partner level in an investment and support firm with a focus on Africa.
If you’re interested in joining The Collective, sign up here!