Exploring the Tech Scene in South Africa

M&A Deals in South Africa’s Tech Sector

South Africa’s thriving tech sector is one of the continent’s main economic drivers. This sector includes software development, hardware manufacturing, telecommunications, cybersecurity, digital services and more.

The global trend of consolidations and M&As presents opportunities for investors to boost returns on their investments. However, M&As also have their downsides.

Start-ups

The thriving African tech startup scene is making waves on the global stage, thanks to its vast potential and young, tech-savvy population. Startups across sectors are leveraging emerging technologies to create innovative digital solutions and services that address real-world problems.

Startups that are leading the charge include fintech, agritech, healthtech, and edtech. Other sectors that are attracting a lot of attention are e-commerce and cleantech.

In 2022, South Africa saw a significant increase in the number of startups and the amount of funding raised. However, in 2023, the startup ecosystem faced a funding lull.

Despite this setback, some companies are managing to secure startup funding. For example, Jabu offers a forward-thinking solution that simplifies inventory sourcing for industrial businesses. The company is reshaping the retail industry and propelling economic development in Southern Africa. It also has an impressive client base, including large companies like Vodafone and Unilever. Similarly, M-KOPA is an asset financing platform that gives underbanked Africans access to productive assets by enabling them to make payments via digital micropayments.

Mergers & Acquisitions

In an economic environment where there is significant risk and instability, M&As offer a way to establish growth and gain a competitive advantage. Moreover, M&As allow startups to grow without having to raise their own funds.

M&A deals in the African tech ecosystem have been growing in value. According to Digest Africa, the value of M&A deals in the African tech ecosystem was $504 million in 2018.

Adapt IT, a South African software development company, was acquired by Volaris, an IT solutions provider for financial services. The acquisition will enable Adapt IT to increase its market presence in the global IT services industry.

The acquisition is also a boost for South Africa as it looks to build a strong technology business in the global digital economy. The deal is also expected to drive more investment into the local IT sector. Moreover, the acquisition will help Adapt IT develop its products for the international markets. This includes its products such as Adapt iT, a customer relationship management solution and a digital transformation platform.

Venture Capital

South Africa remains a dominant player in the African tech venture capital landscape and has continued to attract significant investments from both local and international investors. Its diversified markets, growing entrepreneurial talent and strong corporate sector offer an appealing investment proposition. Moreover, the recently launched African Continental Free Trade Agreement (AfCFTA), which is expected to improve intercontinental trade and development of cross-African supply chains, will likely boost investments in the continent.

However, despite the positive sentiments, 2022 was a tough year for the ecosystem with a marked decrease in transactions. The global economic slowdown has affected VC fundraising and has made investors cautious.

In a bid to improve the quality of startups, investors need to look for well-constituted and diversified teams, robust business models with clear market validation, and a viable funding model. They also need to be able to provide a strong pipeline of attractive investment opportunities. Moreover, they should be able to demonstrate a high risk-adjusted return on investment.

Private Equity

The tech sector is attracting attention from private equity firms in South Africa. According to the 2023 Southern Africa Venture Capital Association report, this year is on track to be the busiest in VC deal-making for the continent. The top sectors for investment remain financials and industrials, with the former securing 32% of the total volume and value of deals in the first half of 2022.

Investors are also drawn to agri-tech companies, which offer efficient crop processing and high-quality products. In addition, B-BBEE policy considerations have become an important factor in navigating investments.

However, late-stage venture capital remains hard to come by in the South African tech ecosystem. This means that high-growth startups often run out of runway before they can secure further funding. As a result, some companies are forced to sell early or close down altogether. This is a concern that needs to be addressed. Acuity Ventures is one firm that is looking to address this issue by investing in tech-enabled businesses in the growth stage.

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