Nairobi’s Wasoko and Cairo-based MaxAB, two leading B2B e-commerce startups that streamline retailers’ ordering of fast-moving consumer goods (FMCG) from suppliers through their respective apps, have announced a planned “merger of equals.” The merger aims to create better economies of scale in a promising but challenging sector that has been significantly impacted by the COVID-19 pandemic.
However, nearly seven months after the announcement, extended due diligence and macroeconomic headwinds have delayed the deal’s closure. According to sources familiar with the situation, who spoke to TechCrunch on condition of anonymity, the deal was initially expected to close in Q1 of this year.
The significance of this delay is highlighted by the high-profile nature of the merger, described by both companies as “the largest merger in African e-commerce.” Although the exact size and value of the deal have not been disclosed, both companies are major market players, collectively raising hundreds of millions of dollars from prominent investors.
The progress of this merger will serve as an indicator of the overall state of the B2B e-commerce market in the region. Initially, the companies operated in eight countries, but this has since decreased to six: Kenya, Rwanda, Tanzania, DRC, Morocco, and Egypt. This downsizing has led to numerous layoffs.
Currently, there is a review of ownership stakes in the new combined entity. Initially, Wasoko was set to own 55% of the new company, with MaxAB holding 45%, based on revenues as of December. However, due to significant currency devaluation of the Egyptian pound in March, this distribution is under review. MaxAB, impacted by its operations in Egypt, may agree to the revision as it urgently needs the merger to close due to its depleted runway.
Both companies claim to have secured additional investments, providing enough runway to achieve profitability. However, sources indicate ongoing negotiations for further funding post-merger. Attracting new investors might be challenging in the current funding environment, particularly for the B2B e-commerce sector, which has faced significant challenges over the past year and a half. To overcome this, the companies may need to shift their focus from high top-line growth to profitable scaling by improving gross margins and potentially introducing new services, such as financial services and marketing offerings. Alternatively, they could cut costs by streamlining overlapping business structures.
Wasoko and MaxAB have recently undertaken measures such as laying off employees, parting ways with key executives, and ceasing operations in certain markets. These actions suggest the new entity will likely serve fewer than the 450,000 retailers mentioned during the merger announcement. Currently, Wasoko’s website states it has 50,000 retailers. As the merger nears completion, the CEOs of both companies will remain as full-time executives but will operate in different roles.
Wasoko CEO Daniel Yu will focus on investor relations, HR, and fundraising, while MaxAB CEO Belal El-Megharbel will manage internal matters such as technology and operations. El-Megharbel has taken control of operations in Kenya and led a significant restructuring within the new entity, reducing the monthly burn from $2 million to $500,000, though this also decreased the gross merchandise value (GMV). Wasoko reported an annualized GMV of $300 million in 2022.
A Wasoko spokesperson informed TechCrunch, “Regarding our merger with MaxAB, it is important to note that the process is progressing as expected and in line with the initial terms. Mergers of this magnitude typically require substantial time to finalize after the signing of initial terms, and our process is advancing as planned. Given the ongoing nature of the merger, we are currently unable to comment on speculation about its finer details. We strongly encourage all stakeholders to rely exclusively on official communications from our team for accurate information about our operations.”
Among the prominent investors who collectively invested over $240 million into Wasoko and MaxAB before the merger are Tiger Global, Silver Lake, Avenir, and British International Investment. 4DX Ventures, a pan-African investor that supported both companies during their early and growth-stage rounds, is overseeing the merger and facilitating ongoing discussions. Acknowledging its conflict of interest as a shared investor and board member of both companies, 4DX refrained from participating in core negotiations and decisions between the two companies.
The valuation of the new entity remains uncertain, but in Q4 2023, one of Wasoko’s investors reduced its valuation to $260 million, as previously reported by TechCrunch.
Main Image: Wamda
