Last December, Nairobi’s Wasoko and Cairo-based MaxAB — two B2B e-commerce startups facilitating retailers to order fast-moving consumer goods (FMCG) from suppliers via their apps — announced a planned “merger of equals.” The objective was to create superior economies of scale in a promising yet challenging sector, particularly in the wake of the Covid-19 pandemic.
Nearly seven months later, extended due diligence amid ongoing restructuring and macroeconomic challenges has delayed the closing of the deal, according to two individuals familiar with the matter who briefed Truth Voices on condition of anonymity. The deal was initially expected to close in Q1 of this year.
The delay is significant partly because of how high-profile this deal has been. It has been dubbed “the largest merger in African e-commerce” by both companies. Although neither has disclosed the deal’s size and value, both startups have secured hundreds of millions of dollars collectively from numerous high-profile investors. Consequently, the progress of this merger serves as a barometer for the overall state of the B2B e-commerce market in the region.
At the time of the planned merger announcement, these B2B e-commerce platforms were operational in eight countries. Now, that number has reduced to four: Kenya, Rwanda, Tanzania, and Egypt, accompanied by significant layoffs following the downsizing.
There are now discussions about revising ownership stakes in the new combined holding company. Initially, Wasoko was to own 55% of the new entity, while MaxAB would hold 45% based on revenues as of December. However, this share is now under review due to the massive currency devaluation of the Egyptian pound in March. MaxAB, disadvantaged by its presence in Egypt, may agree to the revision as it urgently needs the merger to close due to its severely depleted runway, sources have indicated.
Both companies claim to have secured additional investment, providing enough runway to achieve profitability. Yet, sources say they are still in talks for follow-on funding after the merger concludes. Neither startup has provided details on the new funds raised.
Attracting new investors could be challenging in the current funding climate (especially for the B2B e-commerce sector, which has faced a reckoning over the past year and a half) unless both companies adapt their operations quickly. They may need to shift focus from high top-line growth to profitable scaling by improving gross margins and potentially introducing new services to expand their customer touchpoints, like enhanced financial services and marketing offerings.
Alternatively — and perhaps more realistically — they might need to cut costs drastically by streamlining overlapping business structures.
So far, Wasoko and MaxAB have done this by laying off employees, parting ways with key executives, and halting operations in certain markets. These measures suggest the new entity will likely serve fewer than the 450,000 retailers quoted during the merger announcement. By comparison, Wasoko’s website currently states it serves 50,000 retailers.
As the merger nears completion, the CEOs from both companies will continue as full-time executives but in different roles.
Wasoko CEO Daniel Yu will focus on investor relations, HR, and fundraising, while MaxAB CEO Belal El-Megharbel will handle internal matters like technology and operations, according to sources familiar with their new responsibilities. El-Megharbel has taken charge of operations in Kenya and led significant restructuring within the new entity, reducing the monthly burn rate from $2 million to $500,000; gross merchandise value (GMV) also decreased as a result. Wasoko reported $300 million in annualized GMV in 2022.
“Regarding our merger with MaxAB, it is important to state that this is progressing as expected and in accordance with the initial terms. Mergers of this scale usually require an extensive period to finalize following the signing of initial terms, and the process is advancing as planned,” a Wasoko spokesperson told Truth Voices. “In light of the ongoing nature of the merger, we are currently not in a position to comment on speculation surrounding its finer details. We strongly encourage all stakeholders to rely solely on official communications from our team for accurate information regarding our operations.”
Tiger Global, Silver Lake, Avenir, and British International Investment were among the high-profile investors who collectively injected over $240 million into Wasoko and MaxAB before this merger.
But 4DX Ventures, a pan-African investor that backed both companies in their early and growth stages, is overseeing the merger and facilitating ongoing discussions. The valuation of the new entity remains uncertain, but in Q4 2023, one of Wasoko’s investors marked down its valuation to $260 million, Truth Voices previously reported.
