The year 2021 witnessed a major fillip to the region’s tech ecosystem, both in terms of the amount of money raised and the number of startups exiting through either IPOs or mergers and acquisitions (M&A).
Last year, a total of 43 M&A transactions took place with 34 startups from the region being acquired by either fellow startups, private equity companies or corporates. The list boasts a several female-led acquisitions including the UAE’s Mumzworld which was acquired by Saudi Arabia’s Tamer Group and Egypt’s Eventtus by US-based Bevy.
In terms of countries, most acquisitions were concentrated in the UAE, Egypt and Saudi Arabia, respectively. This comes in line with the fact that these countries also attracted the bulk investment raised last year with over $2.5 billion, accounting for 87 per cent of the total raised. The UAE was home to a couple of IPO-bound companies; online music streaming platform Anghami and shared mobility services provider SWVL, both startups announced their plans to list on the US NASDAQ via a SPAC deal in 2021.
Sector-wise, B2B/B2C marketplaces, edtech, healthtech and mobility witnessed the most M&A deals last year. The gaming sector also created a buzz in 2021 thanks to Stillfront’s acquisition of UAE-based social card gaming platform developer Jawaker in a deal valued at $205 million.
The spike in the M&A activity came as a direct result of the surge in VC funding inflows into the region’s tech ecosystem. In 2021, Mena startups raised $2.87 billion collectively, almost four times as much as the amount raised in 2020.
“For startup founders and investors alike, the ultimate goal is an ‘exit’. For the past five years, making a portfolio startup pull off a successful exit used to be a source of worry for VCs and risk capital investors especially those based outside the region. In this region, the route to an IPO is not easy, and M&A is the most common form of exits. As VC activity grows, so do companies’ valuations, making them a lucrative target for acquisition,” says Sherif Nassim, founding general partner at venture capital firm Jedar Capital.
With more startups managing to raise larger funding rounds, more acquisitions are likely to be on the way, according to Nassim.
From a startup perspective, M&As can shape up to be an alternative financing option to VC funding given the existing gap in early stage funding.
“[We] found out that most VC funding is being directed towards sectors like fintech and logistics. Towards the end of 2020, we were looking to scale fast, we have had talks with investors to raise funding while actively looking for acquisition opportunities by other players working in a similar vertical across Africa or the Middle East,” says Omar Ramadan, founder and CEO Egypt-based home services marketplace Filkhedma, which was recently acquired by Nigeria’s SweepSouth.
With the acquisition, the startup has facilitated SweepSouth’s expansion to Egypt and enabled it to gain more market share.
“For SweepSouth, Egypt is the second biggest market in Africa and is difficult to access. It was easier to gain entry by acquiring a company that already has on ground operations, knows the market left and right and already possesses the know-how. It’s been an exciting story for both of us,” Ramadan adds.
Gaining access to a fast-growing emerging market like the Middle East is the reason behind the rise in global M&A activity in Mena.
“In the past, global investors used to refrain from investing in startups from the region. Recently, they have become fully aware that the next big wave of growth in the next 10-12 years is going to be in emerging markets like Mena. So instead of establishing a new business, mergers and acquisitions are a common route for foreign investors looking to expand in this part of the world,” Nassim explains.
Last year saw a record amount of global investments being pumped into the regional tech ecosystem; investors outside Mena participated in 182 deals closed by startups last year, according to data released by Wamda Research Lab. A similar scenario played out in the M&A arena. Of 35 startups, 12 were acquired by global investors, primarily US and Africa-based investors.
This includes Nigeria’s Helium Heath’s acquisition of Qatar-based Meddy, US-based cloud kitchen operator Reef’s acquisition of UAE’s iKcon, and Cloud Klair’s acquisition of UAE-based Sehteq.
Another major highlight for M&A activity was the growing interest of regional startups in acquiring other businesses across global markets.
SWVL, for example, following its SPAC announcement, went on an acquisition spree. In August, the mobility startup acquired Spain’s on-demand shuttle booking platform Shotl. A few months later, it followed it up with its acquisition of Argentina’s carpooling startup Viapool.
Other notable deals included UAE-based artificial intelligence startup Nybl’s acquisition of Mexico’s Nubila, mobility solutions provider FENIX’s acquisition of Turkey’s PALM, edtech Abwaab’s acquisition of Pakistan’s Edmatrix, Egypt’s super app’s merger with Netherlands’ MNT investments.
As the region’s startups continue to mature and attract larger ticket sizes, we can expect to see more of them look to acquiring fellow startups as a way to scale to new markets and establish market dominance.
Credit: Source link
