Last December, Nairobi’s Wasoko and Cairo-based rival MaxAB — two B2B e-commerce startups that enable retailers to order fast-moving consumer goods (FMCG) from suppliers via their respective apps — announced a planned “merger of equals.” The aim was clear: create better economies of scale in a sector that holds a lot of promise in the region, but has faced significant challenges in the wake of the Covid-19 pandemic.
Nearly seven months on, however, extended due diligence amid ongoing restructuring and macroeconomic headwinds has delayed the closing of the deal, according to two people familiar with the matter who briefed TechCrunch on condition of anonymity. The deal had been expected to close in Q1 of this year.
The delay is important in part because of how high-profile this deal has been so far. It’s been described as “the largest merger in African e-commerce” by both companies. But even if neither company has specified the size and value of the deal, they are both significant players who have raised hundreds of millions of dollars collectively from several high-profile investors. How it develops becomes a barometer of the overall state of the B2B e-commerce market in the region.
When the planned merger was first announced, the B2B e-commerce players were active in eight countries. Now, that number is down to four: Kenya, Rwanda, Tanzania, and Egypt, with scores of layoffs in the wake of that downsizing.
There is also now talk of a review of ownership stakes in the new, combined holding company. Initially, Wasoko was set to own 55% of the new entity, while MaxAB would retain 45% based on revenues at the end of December. We understand that 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, according to sources.
Both companies claim to have received additional investment, providing enough runway to reach profitability, yet sources say they are still in talks to raise follow-on funding after the merger is complete. Neither has provided details on new funds raised.
Attracting new investors, in any case, could prove tough in the current funding climate (especially for the B2B e-commerce industry which has faced some reckoning over the past year and a half) unless both companies quickly adapt their operations, shifting focus from high top-line growth to profitable scaling by improving gross margins and potentially bringing on new services to expand their touchpoints with customers, such as more financial services and marketing offerings.
That or — perhaps more realistically — cut costs drastically by streamlining overlapping business structures.
So far, Wasoko and MaxAB have done that by laying off employees, parting ways with key executives, and halting operations in certain markets. These recent moves suggest the new entity will likely serve fewer than the 450,000 retailers quoted during the merger announcement. For a point of comparison, Wasoko’s website currently states that it has 50,000 retailers.
As the merger nears completion, the CEOs from both companies will continue as full-time executives but function in different roles.
Wasoko CEO Daniel Yu will concentrate on investor relations, HR, and fundraising, while MaxAB CEO Belal El-Megharbel will handle internal matters such as tech and operations, according to sources familiar with their new responsibilities. El-Megharbel, as per sources, assumed control of operations in Kenya and oversaw significant restructuring within the new entity, leading to a reduction in monthly burn 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 TechCrunch. “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 prior to this merger.
But 4DX Ventures, a pan-African investor that backed both companies in early and growth-stage rounds, is the firm overseeing the merger and facilitating ongoing discussions. The valuation of this new entity remains uncertain, but in Q4 2023, one of Wasoko’s investors marked down its valuation to $260 million, TechCrunch previously reported.
