.@TNP is pleased to have advised @Paystack on its recent acquisition by @Stripe. We are super excited to have been a part of it. The deal has been valued in excess of $200 million and makes it the biggest acquisition and the startup acquisition to come out of Nigeria. #fintech. pic.twitter.com/Chhi9eGLfS
— TNP (@TheNewPractice) October 16, 2020
Nigeria: $200m Paystack/Stripe deal is a tip-off for global investors
The purchase of a local Nigerian fintech start-up by a US giant is a shot that can be heard around the world.
The deal in which Stripe agreed to buy Paystack may not be the final word on whether Nigeria’s own venture capital scene has arrived, as the majority of local investors are still yet to wake up to the start-up asset class.
But it does mean however that local venture capital’s (VC) investments are yielding rewards and signals that Nigerian start-ups are bankable, says Tomi Davies, co-founder of the Lagos Angel Network and president of the African Business Angel Network, referring to the recent acquisition of Paystack.
Stripe, a US-based financial services and software service company, agreed to buy one of Nigeria’s biggest fintech giants, Paystack, in a deal that is seen as the biggest start-up acquisition from Nigeria. Although the details of the deal were not immediately disclosed, TNP, a Lagos-based law firm that advised on the acquisition, said the deal was valued in excess of $200m, in a tweet.
Paystack is a payments company and says that it has more than 60,000 business clients, including telecoms giant MTN Domino’s pizza and insurer Axa Mansard.
“What this is showing is that local angel investors are starting to come of age. In this case, we have angels that started the journey with Sola [Akinlade] and Ezra [Olubi], validating our belief that local investors are critical to the empowerment of founders creating innovative solutions to our challenges on the continent,” Davies said.
Kola Aina of Ventures Platform and Venture Capitalist said he was happy that one of his early investments has just been acquired by Stripe.
The acquisition by Stripe is only “just a shot across the bow,” Davies said, as he sees more acquisitions in the tech space’s future. Aina sees the deal as “significant” for the early investors. Paystack is backed by Visa, Stripe and Tencent, which owns the Chinese app WeChat.
“The Paystack acquisition is evidence that the Nigerian tech ecosystem is ripe for more VC funding. Before this other fintech companies have attracted investments, none this big however, aside from Flutterwave, which is valued around $600m. It also shows that VCs can make money from their fintech investments. I mean the initial investors in Paystack must all be smiling to the bank at the moment,” said Ahmed Inuwa, a co-founder at Afripay.
Stripe makes entry into Africa
The fintech acquisition paves way for Stripe, which has been eyeing the African market, to “accelerate” its presence across the continent, in what observers say is a move to corner a piece of the market. To Davies, the acquisition is evidence of “inherent demand met by the ability to excel using technology-enabled innovation in spite of the odds”.
Digital payments are expanding in Nigeria and growing by nearly 500% in 2019, according to data from the Nigeria Inter-bank Settlement Scheme (NIBSS). It showed that people in Nigeria transferred N149bn ($392.1m) from their mobile devices in December 2019, up from N28.14bn in December 2018. Observers say the Paystack deal signals to Nigeria as being one of Africa’s biggest fintech destinations for VC money.
Last year, Visa paid $200m for a 20% stake in Nigeria’s Interswitch, a digital payment platform. Interswitch confirmed it reached unicorn status – a valuation of $1bn or higher – after the Visa acquisition.
Of the VC funding raised by African tech start-ups in 2019 totalling $2bn, Nigeria attracted a record high of $747m in tech investment, some 37% of all funding, according to US-based Partech, a global investment platform for tech and digital companies.
New eyes on the sector
For investment adviser Aubrey Hruby, the Paystack agreement will help bring the continent new capital injections. “Too many entrepreneurs, particularly those of colour – whether they be in Silicon Valley or in Africa – are invisible to mainstream capital. An acquisition like this brings enormous visibility.”
Investors who ignore Nigeria now have to ask themselves: What do I know that Patrick Collison doesn’t?
— Paul Graham (@paulg) October 15, 2020
The agility and the technical know-how of the young start-up founders as well as investment from Nigerian banks are seen as the drivers behind the vibrancy of this ecosystem, according to Inuwa.
“A whole lot of Nigerian banks have invested heavily in tech, making it easy for fintech companies to integrate. Also, the youthful population in Nigeria have a knack for remote work, so the issue of receiving payment from abroad is also a push [factor],” he said.
The growth in the Nigerian financial market, partly driven by the country’s financial inclusion roadmap, is a big factor that is driving traditional banks as well as fintechs to push financial products to more people, thus allowing for deeper penetration of financial technology in Africa’s most populous country.
With global fintech companies looking to penetrate more markets and consolidate their gains, analysts see a bigger push for more acquisitions in the country of more than 200 million people.