S2E5: A Fintech Exit - Inside the MFS Africa Acquisition of Beyonic

August 27, 2020

Last episode, we went on a hypothetical startup journey from idea to exit. In this episode, we go on a real one.

In June of 2020, MFS Africa announced the acquisition of Beyonic. Together, the combined company of 95 employees now enables mobile money interoperability between markets and mobile network operators, and offers a suite of tools for SMEs, in 30-plus African markets. We go inside the acquisition - how it came together, why it makes sense, and what it means - both for the two companies and their stakeholders and for the ecosystem as a whole.

[02:27] - Introducing some of the main players in the deal - Dare Okoudjou, the Founder & CEO of MFS Africa, Luke Kyohere, Founder of Beyonic, Carina Rumberger, CEO of Beyonic and Rachel Balsham, Deputy CEO of MFS Africa.

[03:43] - We go back to 2009, when Dare left MTN to start MFS Africa. What was it like running the business in those early days building the foundation and infrastructure for mobile money usage across the continent?

[07:55] - Luke takes us back to the beginning of Beyonic, where he saw an opportunity to build out tools for SMEs using mobile money.

[11:22] - In 2018, after a sizeable fundraise, MFS Africa set out to scale. Two of their strategies included a) exploring tools for SMEs, and b) making minority investments in other complementary fintech startups across the continent. As these two strategies converged, Dare and Luke re-connected to talk fundraise.

[16:11] - The discussions minority investment quickly became a majority investment and then a full acquisition. Dare, Rachel, Luke and Carina recount their respective thoughts on strategy, and how and why a full acquisition became the deal they pursued together.

[19:39] - We get into the weeds a bit on tactics - what was the sell-in process like to each respective company's employees, shareholders and customers?

[26:09] - On integration - of the teams and of the products.

[30:07] - What does this deal - fintech consolidation, an African fintech acquiring another African fintech - mean not only for the newly combined company but for the African tech ecosystem as a whole?

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Dare [00:13]: When someone is doing the next deck and people ask about what's your exit strategy?

Justin [00:17]: That's Dare Okoudjou, the Founder and CEO of MFS Africa.

Dare [00:21]: They can say, well, we can sell to Paga, or we can sell to Paystack. In the long run, I think it will actually be much better for us.

Justin [00:28]: I recently had the opportunity to speak with Dare, as well as several others who you'll be introduced to shortly, on the recent acquisition of Beyonic by MFS Africa. We believe that this kind of acquisition, in particular, is an important one for the ecosystem, and therefore an important story to tell, of fintech consolidation. One African fintech acquiring another African fintech.

Luke [00:49]: When I travel around, especially one African country to the other, you see a lot of companies doing interesting things. And you see a lot of them struggling with some of the same problems.

Justin [01:01]: That's Luke Kyohere, the Founder of Beyonic.

Luke [01:03]: It's almost very clear what the potential partnerships, merger and acquisitions could be. And I think if we can have more and more of those conversations happening between these companies, it's just almost a no brainer in a lot of cases. I hope we'll see more companies thinking about stronger together.

Justin [01:22]: Last episode, Season Two, Episode Four, we talked to investors about valuations and the pathways to exit. In this episode, we take an inside and in-depth look at the MFS Africa acquisition of Beyonic. How and why did the deal come together? What were the most important points of consideration for an acquisition of this kind? What was the sell-in process like to each company's stakeholders? Post-deal, what does integration look like, and what growth opportunities will exist for the combined company? And finally, what could this deal mean for the African ecosystem, in terms of broadening the scope of prospective exit paths for African startups.

Last episode, we went on a hypothetical startup journey from idea to exit. This episode, let's go on a real one.

VO [02:13]: You're listening to The Flip, the pocast exploring contextually relevant stories from entrepreneurs around Africa.

Justin [02:22]: Welcome back to The Flip, I'm your host Justin Norman. On June 30th of this year, MFS Africa announced their acquisition of Beyonic, a growth-stage startup offering enterprise digital payment services to SMEs in seven markets across Africa. To get the inside story and discuss the implications of this acquisition, I talked to four entrepreneurs, who have all played an integral role in not only scaling their respective businesses but also in making this acquisition happen.

Two of these entrepreneurs - the founders - you've already been introduced to.

Dare [02:52]: I'm Dare Okoudjou. I'm the founder and CEO of MFS Africa.

Luke [02:56]: I'm Luke Kyohere and I'm the founder of Beyonic.

Justin [02:59]: The other two individuals we'll hear from, both joined a bit later on in the journey.

Carina [03:03]: I'm Carina Rumberger. I am the CEO of Beyonic.

Rachel [03:07]: I'm Rachel Balsham. I'm the deputy CEO and head of corporate development at MFS Africa.

Justin [03:12]: But before re-introduce Carina and Rachel to the story, let's start at the very beginning with Dare and Luke founding their respective companies. Dare started MFS Africa in 2009, after leaving MTN, where he was responsible for rolling out mobile money across various MTN markets on the continent. Dare saw parallels between mobile money and the rise of dot com businesses back in the late 90s and felt there was a need and an opportunity to build critical infrastructure that could have a similar impact on mobile money as the transistor had on computers and the Internet.

Dare [03:43]: I was looking for the transistor in mobile money. And for me, it boils down to really four things. It boils down to the KYC information. Then there was the authentication tool that the pin represents. And then the ability to credit, which was kind of given already. And then the ability to debit, which was not that present back then in mobile money. And I thought if you combine those four things, actually you can recreate any financial service. So if we build a platform that can connect to a mobile money platform and do those four things, we will be in the game for a long time because we will just be playing at a transistor level. When that became clear to me, that's when I said, okay, let's build the company.

Justin [04:21]: And back in those early days, there was a lot to build and a lot of mobile network operators to connect to and make interoperable, which was reflected in how MFS Africa went after and explored their initial opportunities.

Dare [04:32]: So 2010 to 2014, we had to go tactical. We packaged it as a value-added service provider. So when we connect, so we will tell mobile networks like, look, you know, we can bring all these services. Do you want to do loans? We can combine these four things to make loans. Do you want to do insurance? Of course, we can combine this. So let us be those people who package and bring value-added services to you, and you worry about your distribution network and your cash-in, cash-out agents, and your Fundamo platform that is crashing.

Justin [05:03]: And while MFS Africa was able to provide various services to mobile network operators, their initial approach just wasn't sustainable.

Dare [05:09]: Little did I know that that was slowly killing us, as well, because we were not a big team. We were just spread way too thin, right. And none of these things was really at scale, but what each of them gave us was a bit more network. So we were connecting more to people, but by the beginning of 2014, we were dying of slow death at that time because we couldn't raise money.

Justin [05:33]: And part of the reason they couldn't raise money, was because of their story - and just the sheer amount of things they were doing at that time. But as the mobile money environment matured in those early years, MFS Africa was able to focus their efforts and turn a corner.

Dare [05:46]: Money transfer was always a little bit the Holy Grail, but a lot of people were thinking about it from North to South. So from Europe into Africa, from the US into Africa. And toward the end of the day, 2014 something changed the ecosystem, which is the recognition of something that we'll be preaching for a long time, that Africa to Africa money transfer opportunity is bigger than the other one, through mobile money at least, because there was less explanation to be done, consumer behavior to change. You know, trying to convince someone on a high street in London to send money to a phone, you need to take a chair and sit down and explain. While if you want to convince someone from Kenya to send money to Uganda, it's a no brainer. They've been doing it for years at that point. So phase two was really kind of zeroing in on that from 2015.

Justin [06:34]: It was around this time that Rachel, MFS Africa’s Deputy CEO, joined the journey.

Rachel [06:39]: The kind of semi pivot that we did in that early period was to go from the experimentation to an API-based B2B hub. The mechanics weren’t very different. So debiting somebody in Cote d’Ivoire for their insurance premium and crediting somebody in Benin for their microloan, you know, it’s the same function. But we can recombine them and call it a remittance when those two people know each other and do it on purpose. So in my first couple of years, we really honed in on what are the things that we can scale and what are the things that we have control over. Remittances were something that users were instantly familiar with, they were already sending money.

Justin [07:21]: And for MFS Africa, it became about facilitating and enabling, for those looking to make transactions across borders or between mobile network operators.

Rachel [07:29]: Our ambitions when I joined were to be again, this multifunctional, all-powerful platform that can connect any store of value to any other store of value, or also any type of function. And that any-to-any interoperability has really been like our guiding, kind of our Lodestar in terms of where we direct the strategy of the business.

Justin [07:54]: Now, before we go any further with Dare, let's go back to the beginning of Beyonic. Here's Luke.

Luke [07:59]: Around the time mobile payments were coming of age, so Safaricom was doing well in Kenya, I was in Uganda at the time. I was working with Grameen Foundation, helping them build out mobile-based tools for agriculture and we were trying to connect to mobile payments and it wasn't that easy. These platforms were focused on P2P payments - you know, being able to transfer money from one person to another, and they're doing great in that space - but if you were a business that was trying to connect to these platforms, you had to jump through a number of hoops and you had to talk to more than one mobile payment provider, you have to spend a lot of time upfront trying to get the connections in place.

Justin [08:39]: Seeing and intimately understanding these pain points, Luke knew there was a business around solving these problems for SMEs.

Luke [08:45]: It made sense that someone would play this aggregator role, just like, you know, with the SMS space there were middlemen who provided the bridge between the business world and more than one of these telecoms.

Justin [08:59]: As the Beyonic team set out on this journey, they participated in and received funding from Techstars in Cape Town, and then set out on a fundraise.

Luke [09:06]: We would have raised around the end of 2016, just coming out of Techstars, start of in 2017, we were raising a larger round. But one of the partners, the vehicle that they were going to be using to fund us fell through, and it was a bit of a blow cause they were the lead on this fundraising round, and that kind of meant that some of the other potential funders decided not to proceed. And it was weird cause we found ourselves at a crossroads where we could go out and try to spend a lot more time raising again, but we were fairly liquid, as well. We were not hurting. So we said, why don’ we, put all our energy into pushing for profitability?

Justin [09:49]: So Beyonic got profitable.

Luke [09:50]: And kind of set us up for the period that eventually led to us being profitable around 2018. In total, we’ve raised under a million for sure, somewhere between 750 and a million.

Justin [10:03]: And in the time since hitting profitability, Beyonic's growth continued substantially, to the point where they found themselves under-resourced. Enter Carina, who took over from Luke as CEO.

Carina [10:12]: I officially joined the team in August of 2018, and my job was really to kind of help - or is, was, is, we are on the journey of - transitioning from a small scrappy, lean startup, where you just do whatever every you need to do to keep those doors open for another week or another month, to a scalable business that could have systems and start to grow its brand and its presence in the space.

Justin [10:43]: And through the process of growing and scaling, it was clear that, in spite of their profitability, they needed to go out and fundraise to support their growth.

Carina [10:50]: At the same time that they hit profitability, they also started to see massive volume scale and it quickly threatened to overwhelm a very small, dedicated, global team. So they looked at that and they just said, listen, we've got to capacitate this growth or it will crush us. So capital raise was pretty obvious next step.

Justin [11:21]: Now back to MFS Africa, who grew and scaled significantly, as well, to capture the cross-border money transfer opportunity within Africa. So their next phase of growth was around a few specific initiatives.

Dare [11:32]: One was we have to go deeper and broader in Africa, and that meant connect everything. Like we'll connect in Liberia, in Sierra Leone, in Seychelles, in Swaziland. We were no longer looking for just the big countries, the big networks, we just want the whole continent wired up, right? The second one was to connect that thing to the world. So we realized that a lot of the people we were connecting had broader aspirations than just monitor transfer, that there was a change in demographics and change in what the consumer wanted.

Justin [12:05]: And as MFS Africa was fundraising in 2018 for their Series B and to support this next growth phase, something happened.

Dare [12:12]: We went in to raise 10, we ended up raising 23.

Justin [12:16]: Which enabled MFS Africa to pursue a bonus strategy, in particular around the SME customer segment. Their interest in pursuing an opportunity for SMEs was to some degree demand-led. Here's Rachel.

Rachel [12:28]: We were seeing a lot of users sending every week or every week to two or three people. And repeatedly the same small set of users. And what that indicated to us was this looks like small trade, this looks like, you know, small business activity. So we thought, okay, actually, there's a market here that's really not being served very well, which is kind of just at the top of power user and just at the bottom of SME. And that market is not being served by business banking, but they have outgrown the consumer suite of tools. So this idea of the SME, the micro SME segment, sort of stuck in our minds for a few years now around, how do we help them scale. Those were the things that were in our minds as we were looking at opportunities to take the business further, whether it was going to be through acquisition or through new product development.

Justin [13:22]: And Dare set out to put some of that money they fundraised to good use.

Dare [13:25]: It actually started around our view of trying to get into the SME piece where we thought there was no way, even at the beginning, of how we get to do that. We were so far from that market. Then we said, okay, well, why don't we set up something which can allow us to do some partnerships with people playing in the scenes, with a bit of capital, to the extent that our hub will be useful. So if we can put a hub to use and people who will start with insights who will be able to move in faster, quicker, better, why don't we support some of that?

Justin [13:58]: So the company launched the MFS Africa Frontiers fund, to make minority investments and provide strategic insight and value to others in the payment space, and in particular those who could plug into the MFS Africa hub, through a commercial partnership, and also who were serving a different customer segment than they were.

Dare [14:13]: So that's why we have MFS Africa Frontiers, which was to invest, make minority, relatively small, 50 to $500,000, for a minority stake in companies that we can partner with on the commercial side.

Justin [14:27]: Perhaps it was a bit unusual for a Series B startup to have a fund to make investments itself, and Dare agrees.

Dare [14:32]: And, you know, it was a little bit unusual. A lot of people, including some of our shareholders, though that was not a good thing to do. But this market there’s no playbook really. We don't know how it's going to work out, how it's going to play out. So why not try some things that are also unusual?

Justin [14:49]: But for MFS Africa, in particular, their desire to pursue this strategy, in the first place, required them to admit that there were certain things - like serving SMEs - that just wasn’t in their DNA, especially at this stage in the company's journey.

Dare [15:01]: About halfway through, I'd say by June 2019, so six months after we set that strategy, it was clear to me that we did not have it in our DNA to build this from scratch, to be able to build an offering for the SME market.

Justin [15:17]: So here MFS Africa was with a bit of money to invest, and with an active interest in exploring opportunities in the SME sector. And at the same time, Beyonic - a fintech building tools for SMEs - was actively fundraising. So, the two Founders got together.

Dare [15:31]: I started kind of going back a little bit on who I know who can, who's doing this, and then reconnected with Beyonic. Then I reached out to Luke to say, “Hey, you know, what, what's up? What are you up to?” And it turns out they were raising money. And then indeed at the beginning, we were like, Hey, maybe we can do, you know, through our Frontiers investment.

Justin [15:49]: And Luke was in Washington, DC at that time.

Luke [15:51]: I got an email from Dare saying, “Hey, I'm going to be in New York. Let's meet up.” So I got on the train to New York and had lunch with Dare, and we started talking fundraise.

Justin [16:10]: So they started talking fundraise. And things progressed rapidly.

Luke [16:14]: I think their relationship grew really quickly became a really close relationship over the next three to four months. And all that timing was first fundraise. And then it became, could we be one of the larger people in the round? And as we went towards term sheet, when it became clear that they were looking to be, to take on the whole round, the question became all right, so what happens afterward? And so we started talking about what a majority investment might look like. The discussion kind of snowballed into, okay, what would happen if we talked about the whole thing. I said, “Well, that's a very different story because we have this trajectory we're on.” And we started talking about what that would look like.

Dare [16:58]: Pretty quickly, he and I got to the same conclusion that, you know, there is an opportunity here to initially, you know, do a majority deal. And then the more I thought about it, the more I thought they just do the whole thing. You know, what will it take to do the whole thing? And by December, we were on the same page.

Justin [17:17]: So why did a full acquisition of Beyonic make sense for both parties? Well, for many reasons - starting with the synergies from a product perspective. Here's Carina.

Carina [17:25]: Often MFS Africa would come up in the context of commercial conversations around like, oh, so how are you different from MFS Africa? And we would say, well, you know, they do international remittance and we don't. We do domestic collections and a payments management toolbox for SMEs and institutions. They facilitate money transfer via mobile money. So, you know, where they stop we start and vice versa.

Justin [17:50]: And here's Rachel again.

Rachel [17:52]: What's cool is that we've been focusing on very different segments of the market and so there isn't a lot of duplication, there isn't a lot of, you know, turf war. There's a very clear delineation between, you know, where we've each been focusing.

Justin [18:03]: And then there were many strategic and integration-related considerations on the MFS Africa side with Dare and Rachel.

Dare [18:09]: The idea of the full buyout actually was easier to sell. Because I think everybody also saw that there will be a clean deal. There was a bit of worry about being half pregnant.

Rachel [18:18]: If you make a majority investment that's less than a full acquisition and it's a strategic investment and you're trying to, you know, go the distance together you open the door to the risk of not being able to realize all the synergies that you want to. There may still be to set this idea like, okay well we have them for this investment, but we're also going to go do our own thing, for this thing. And we wanted that commitment that, okay, we're going to journey together. We'll be one company, with multiple products.

Justin [18:49]: But none of this would be possible without an alignment of mission and vision of both companies and its leadership.

Dare [18:54]: The culture has to be there, that we can actually integrate with this team. That we're not going to fight, we see the world the same way.

Justin [19:00]: And it was something Dare had to sell into the Beyonic team.

Carina [19:03]: I very quickly hopped on a plane and went down to Joburg in November, and met Dare for breakfast. And in my mind, I didn't tell Dare this, but in my mind, I was saying you have one hour to convince me why I should trust my people with you. And he did. And what I was looking for was a shared kind of vision, a compatible approach to solving problems and to seeing the world and how we can make it a better place, while not shortchanging the importance of return on investment. And he convinced me pretty quickly.

Justin [19:41]: So let's get into the weeds here a bit and talk tactics. What were the steps in the process to go from initial discussion to the signed agreement? What did the sell-in process look like?

Dare [19:49]: At first it was to sell to the team first because I mean, and when I say sell it, just to sound out, I mean, Rachel was involved in the initial conversation then other members of the team, and that has been always something we've had at MFS African. First of all, you know, we have really, really a good team, talented people. They speak their mind, and they tell it the way it is. So usually when I bring something like this, many times they send me back and say, “Hey, this is nonsense. It's going to be a distraction for us.”

Justin [20:17]: For MFS Africa, the due diligence process was managed by multiple members of their exco.

Rachel [20:22]: So the due diligence process was led by Maz Chaponda, who's our Chief Technical Officer and he's also a board member. And so he's also, I think, one of the more skeptical and most resistant to rose-colored glasses. So Maz led the process and in so doing, he delegated the specific, you know, the financial due diligence process was led by the CFO with Maz running the overall process, and the operations due diligence run by the Chief Operating Officer, etc. So there was a pretty widespread buy-in from the beginning of, you know, taking a look at the opportunity in the first place. We progressed in the due diligence really as a team.

Justin [21:08]: At the same time, Dare worked on selling into the MFS Africa board.

Dare [21:11]: I have a pretty working board, which I’m very grateful for. So, I can pick up the phone and have a conversation about, you know, this problem, this, this, how can you help? And I kind of did the same with the different board members, just in a one-on-one first, just to say, “Hey, what do you think?” It was, you know, if I were to score it, I will say the first reception was maybe a 6 out of 10, maybe 5.5. It was not a no, but it was not yeah let’s go for it, right? So I had to spend a little bit of time, it was really to think about the things that they raised, you know, about culture again, about our ability to fit. So going back and having, first of all, reflecting on that's myself, but also have the conversation with Luke, have the conversation is with the team. And eventually what that gave us was the list of key things that we needed to check-in due diligence, to say we don't know these things for now, but indeed, if these things check out, it's a good deal.

Justin [22:09]: And as the opportunity to do a full acquisition took shape, the board's interest moved considerably.

Dare [22:14]: When I went back to my directors at that point, yeah, there was way more enthusiasm for that than for the initial idea that we had.

Justin [22:22]: Meanwhile, Luke was having similar conversations with Beyonic's board and shareholders.

Luke [22:26]: So the first question was is this really a serious thing or is it just really feeling out each other, especially when we brought it to the board level. And so we actually arranged some meetings where our board met with the MFS Africa team, as well, and had a chat just to understand where everyone's going. And especially when it was part of the discussion was. are any of us staying on, including some of the other shareholders, and they wanted to know what they'd be buying into if they stayed on and what the MFS Africa trajectory was and what the plan was beyond this fundraise for them.

Justin [23:05]: On the Beyonic side, while there were some shareholders who were interested in cashing out - as they may have done on the secondary market if Beyonic had raised a minority round rather than go for a full acquisition - many shareholders bought into the vision such that they wanted to be a part of the combined company.

Luke [23:19]: Internally we were talking about people continuing on pro-rata, you know, basically trying to maintain their shareholding. And so it was almost a discussion of whether or not they were putting more money in versus whether they were going to be taking money out. And in fact, some of them didn't take money out, even with this opportunity. Some of them are still part of the combined company.

Carina [23:42]: What I can say is that investors got about a 5x return on their investment, which is great. They're all really happy. And the folks who actually cashed out versus folks who rolled over into shares in the wider group was about 50-50. So about half of our shareholders cashed out and about half of them are rolled over, which is super exciting.

Justin [24:01]: While Luke was also handling many elements of the technical due diligence and product integration, Carina was managing what an acquisition meant for the Beyonic team itself.

Carina [24:09]: I was really focused more on the sort of operational and people aspect of the deal. Understanding what this would mean for management structures and hiring plans and where my team would fit with MFS Africa's team and where there were redundancies and where there were gaps. And then also how we would actually work together, how we would approach customers together. One of the most common questions I get is how many people are losing their jobs as a result of this? Are they just buying your tech stack and then, you know, kind of sending your people on their way? And from the very beginning, Dare and his team were clear that that was not what this was about. That they were buying control, but they were buying it in a way that was about collaboration, and that the value that we brought to the table as Beyonic, it was our client sheet and it was our tech stack, but it was also a team that performed really, really well. And in order to grow quickly, MFS Africa recognized that they needed to add some capacity, that was pretty high performing, very rapidly. And one of the ways that you can do that is through an acquisition like this.

Justin [25:23]: So buy-in from the boards and shareholders, and from the teams, and all the while, the process went pretty quickly.

Dare [25:29]: So it went pretty quick, but it's because we’ve both been on the journey for a long time, there was a clear fit very early on. There was a clear understanding of what needed to be checked on each side to see if this is going to work, and the spirit was absolutely great from the beginning. The first conversation was late October in New York. By December we were discussing term sheet, and by Christmas, we had signed it. Then January, we just got going and that's it.

Justin [26:10]: While at the time of this recording, the deal isn't officially closed - it is still subject to regulatory approval from the Fair Competition Commission in Tanzania - let's discuss integration and implications for the combined company. From an integration standpoint, the primary objective is aligning the teams.

Dare [26:25]: My job as a CEO is also to just be disciplined and be very clear and be very honest, to make sure that the people are not feeling threatened. But at the same time, we are being fair to everyone and making it really safe for not only Luke and Carina but also the entire team, that they actually belong to something and they are excited. Because if they're not excited, this is not, you know, we're not buying a factory, right, where you can replace the workers and follow the procedures. It's a service business. So people, if people are not excited, it doesn't work. And I think I have paid a lot of attention and a lot of our integration and how we approach the deal, just to make sure that there is excitement, we don't turn off the excitement on the side. Cause if we do that, then we're not buying anything.

Rachel [27:12]: We're making sure that relationships are built now, so that cross-pollination and communication is easier in the future. We've started a bit of a buddy system where each member of the team has an MFS Africa buddy.

Justin [27:24]: It's the work that MFS Africa has put into the people aspect of the integration, that the new team believes will have positive implications.

Carina [27:31]: I think understanding and helping convey to my team confidence that you know, they were actually what was being acquired, not just our tech stack. Helping them to see the vision and feel secure that this was an opportunity and not an erasure. That's always a challenge when you blend two organizations or groups of people together, finding a new dynamic, a new footing, and making sure that as people's roles and responsibilities shift, the inevitable insecurity that comes with that gets acknowledged and respected and addressed in a meaningful way. And so I've spent a lot, a lot of time doing that. From the get-go, we have weekly all company calls on Wednesday afternoons.

Justin [28:25]: And then, on the product and customer side, there are a lot of positive implications and opportunities there, as well.

Luke [28:30]: You have a lot of IP on the tech side and you build this over time, so it's not just a simple system that you can, you can merge into something else. And so we've spent a lot of time, both the tech and product teams and either side, trying to figure out what the quick wins are. And we've taken a customer-led approach, where we know the things that customers are asking for, we know where we want to go, and we are working on the fastest and most agile way to get there.

Carina [29:00]: On the customer side of things, not a hard sell because MFS Africa experienced the converse of what we did with their clients, which is they would have to turn people away. Or refer them to us or our competitors, when they would say, “Hey, we really want to be able to do domestic collections and disbursements and local currencies.” They'd be like, “Oh, that's not really what we do. We're, you know, international transfers.” And we would get the converse. You know, we'd have customers saying, “Okay great, so we use you in Tanzania, Kenya, and Rwanda. Can we just pay our supplier in Rwanda from our Kenyan balance because that's where our HQ is?” And we're like, “Well, no, that's not really what you do. You have to pre-fund your wallet in each local currency through our various, you know, money transfer banking partners. We don't do cross-border.” Categorically, full stop. And they were always saying, okay, we understand, but man, it would be great if you did. And so in that regard, when we were finally able to tell customers, it was met with enthusiasm and relief.

Justin [30:09]: We can immediately see the benefits and the opportunities of the combined company. And this raises a question - will we or should we start to see more fintech consolidation of this kind? To the question of why did Beyonic choose to sell the entire business rather than raise a minority equity round, the benefit is clear in terms of the acquisition being a way to achieve their fundraising-related milestones.

Luke [30:29]: So if I was to look at the milestones we said, what we're going to do with the fundraising, right, I said, we would double headcount close to 40. And the combined companies are over 80 people at this point. So check that box, right? Said countries would hit a certain number of countries and the combined company has access across over about 60 markets. So again, pretty good checkmark there. So in terms of hitting the milestones that would send hit, this was a super acceleration on that.

Justin [31:02]: The synergies and opportunity for the new MFS Africa have positive implications for the nature and requirements of venture investing.

Dare [31:08]: There are a few facts that one has to always keep in mind here. And one of them is that most markets in Africa are sub-scale. So success or winners will need to be multi-market. You will need to be multi-market to be able to get to something that is sizable and matters in the long run. How do you achieve that? Because most of these initiatives, or most businesses that we are seeing, are still kind of starting in one particular market and then growing to multi markets. And I think from that perspective, consolidation will play a big role. And the ability for fintech companies to think laterally about combining resources at some point, to be able to achieve that scale faster.

Justin [31:54]: Dare expects to see more consolidation amongst venture-backed startups in the near future.

Dare [31:58]: If you just follow a little bit the money and look at, take the last five years in terms of VC investments into Africa If you take another five to ten years, those exits will be required. That will force, if people don't know voluntarily, I think the capital will force those types of consolidation, because either you are able to get to a scale that you can continue to run and work towards some sort of listing or be meaningful enough for outright acquisition, some sort of trade sale. Or, you will kind of disappear in this space. So because the funders will also need at some point to create a path toward exit, what we've done now with Beyonic, will slowly become a template, I think. Will slowly become a way of thinking about how to get to an exit, if you're in fintech, either a company or an investor at the moment in Africa.

Justin [32:50]: And I want to underscore that last point by Dare - that MFS Africa's acquisition of Beyonic may become a template for the African tech ecosystem. Most people, when you think strategic acquisition, think about big, clunky corporate buying small, agile startup. Carina thought that may be Beyonic's ultimate fate, as well.

Carina [33:06]: So if I'm being completely honest with you, I don't think I saw this one coming. I didn't have this exit in mind as the future path, which is a great example of why it's important to be open to new possibilities because after seeing it start to take shape, I can't imagine a better path to be completely honest with you.

Justin [33:29]: Neither did Luke.

Luke [33:30]: And so we had a slide of exits in fintech in Africa. It was Visa buying Fundamo and PayPal buying Zong. And so those were two up there, and so clearly in our minds, it was possible that one of the Visas of this world, the MasterCards of this world might pursue an acquisition strategy at some point, especially to get into mobile.

Justin [33:54]: But then, as we talk about strategic acquisition, that underscores the shared alignment and culture fit that MFS Africa and Beyonic believe is a crucial element to their deal.

Luke [34:03]: Clearly I think there's going to be consolidation. And I don't think there's a lack of acquirers. I think what, if there's any lack, it's going to be around just alignment. The reason you mentioned some of these things not working out where a large strategic buys a smaller one and five, six years later, they're just winding down the product. I think it's a lot about alignment when companies combine it's, you know, different personalities, it's different company cultures, it's just different paths.

Justin [34:37]: And this is precisely why one African fintech acquiring another African fintech is so exciting and meaningful.

Carina [34:42]: What I find so exciting about the story of an African fintech startup exiting into another African fintech is the confidence that it shows in the market, both in terms of our ability to become a global player from an African stage and our investors’ confidence in the value of this market globally. I'm so happy that we didn't get swallowed up by a massive North American or Asian payments company, even though I thought that might be inevitable at one point because this is a story about solutions being crafted in places and by people who have historically been passed over. The beauty of this deal is that we are being given, not just given permission, but encouraged or, even commissioned, to continue being focused on what it means to develop financial solutions and tech solutions in Africa for Africa, but also what that brings to the wider fintech conversation globally.

Justin [36:00]: As a template, perhaps this acquisition will broaden the perceived set of opportunities and exit pathways for other startups in the ecosystem

Rachel [36:07]: I think the consolidation that this acquisition represents and that the ecosystem is likely to see continue should inform other players. So if you're a large corporate and you're looking at the African tech ecosystem, you know, I think you should think about other African tech players as your competition for those acquisitions, not just other large corporates. So I think it's exciting for us that this, we hope, represents a change in terms of what is possible for other African startups. That a strategic exit that doesn't shift or pause or stop your company's growth and your company's services as possible.

Justin [36:53]: And we'll let Dare, the CEO of the MFS Africa, have the last word.

Dare [36:57]: I think subconsciously we are still trying too hard to please people outside of Africa and not hard enough to look at our own possibilities around here. And subconsciously, you know, obviously we all shout, “Hey, you know, there's not enough funding,” and so on. But we are still trying to run a playbook that is not ours too much. And one of the things that for me is different in our environment is that it's unlikely that the people who start the race are going to finish the race. And we have to just make sure that we pass this on and we build it enough that the next person can stand on the shoulders of giants, but only the next person will see above the wall. And that should be okay with us, as a success, as well. Not necessarily getting all the way to, you know, ringing the bell on New York Stock Exchange. It should be absolutely saluted that someone like Dan and Luke has built a business that can be rolled into another business. And if tomorrow MFS Africa has to do that, I will be absolutely prepared to do it, if that's what it takes to actually create the prosperity, why we started the whole thing in the first place.

VO [38:07]: That’s it for this week’s episode of The Flip. A big thank you to Rachel for her help in organizing this episode and to Dare, Luke, and Carina for taking us inside the acquisition and for giving The Flip an opportunity to tell this story.

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Thanks as always for listening, and we’ll see you next week.