Last December, Nairobi-based Wasoko and its Cairo-based rival MaxAB, two B2B e-commerce startups that allow retailers to place orders for fast-moving consumer goods (FMCG) to suppliers through their respective apps, announced a planned “merger of equals.” The objective was clear: to create better economies of scale in a sector that is very promising in the region, but that has faced significant challenges as a result of the Covid-19 pandemic.
However, nearly seven months later, extended due diligence amid ongoing restructuring and macroeconomic headwinds has delayed the deal's closing, according to two people familiar with the matter who briefed TechCrunch on condition of anonymity. The deal was expected to close in the first quarter of this year.
The delay is significant in part because of the high profile this deal has had so far. It has been described as “the The biggest merger in African e-commerce”by both companies. But even if neither company has specified the size and value of the deal, both are major players that have collectively raised hundreds of millions of dollars from several high-profile investors. Its development becomes a barometer of the general state of the B2B e-commerce market in the region.
When the planned merger was first announced, B2B e-commerce players were active in eight countries. Now, that number has been reduced to four: Kenya, Rwanda, Tanzania and Egypt, with dozens of layoffs as a result of that reduction.
Now there is also talk of a review of the stakes in the new merged holding company. Initially, Wasoko was to own 55% of the new entity, while MaxAB would retain 45% based on revenue at the end of December. We understand that this ratio is now under review due to the massive devaluation of the Egyptian pound in March. MaxAB, disadvantaged by its presence in Egypt, could accept the review as it urgently needs to close the merger due to its severely depleted runway, according to sources.
Both companies claim to have received additional investments, giving them enough headroom to reach profitability, but sources say they are still in talks to raise follow-on funds once the merger is complete. Neither has provided details about the new funds raised.
In any case, attracting new investors could prove difficult in the current funding climate (especially for the B2B e-commerce industry, which has faced some reckoning over the last year and a half) unless both companies quickly adapt their operations, shifting focus from high top-line growth to profitable scale by improving gross margins and potentially adding new services to expand its customer touchpoints, such as more financial services and marketing offerings.
That or, perhaps more realistically, dramatically reduce costs by streamlining overlapping business structures.
So far, Wasoko and MaxAB have done so by laying off employees, parting ways with key executives and halting operations in certain markets. These recent moves suggest that the new entity will likely serve fewer than the 450,000 retailers mentioned during the merger announcement. For comparison, Wasoko's website currently claims it has 50,000 retailers.
As the merger nears completion, the CEOs of both companies will continue as full-time executives but will serve in different roles.
Wasoko CEO Daniel Yu will focus on investor relations, human resources and fundraising, while MaxAB CEO Belal El-Megharbel will handle internal matters such as technology and operations, according to sources familiar. with his new responsibilities. El-Megharbel, according to sources, assumed control of operations in Kenya and oversaw a major restructuring within the new entity, leading to a reduction in monthly spending from $2 million to $500,000; As a result, the gross merchandise value (GMV) also decreased. Wasoko reported $300 million in annualized GMV in 2022.
“Regarding our merger with MaxAB, it is important to note that it is progressing as expected and in accordance with the initial terms. Mergers of this scale typically require an extended period to complete after initial terms are signed, and the process is proceeding as planned,” a Wasoko spokesperson told TechCrunch. “In light of the current nature of the merger, we are not currently in a position to comment on the speculation surrounding its finer details. “We strongly advise all interested parties to rely solely on official communications from our team for accurate information regarding our operations.”
Tiger Global, Silver Lake, Avenir and British International Investment are among the high-profile investors that collectively pumped more than $240 million into Wasoko and MaxAB ahead of this merger.
But 4DX Ventures, a pan-African investor that backed both companies in seed and growth-stage rounds, is the company overseeing the merger and facilitating ongoing discussions. The valuation of this new entity remains uncertain, but in the fourth quarter of 2023, one of Wasoko's investors lowered its valuation to $260 million, TechCrunch previously reported.
