Africa’s first billion-dollar tech IPO on a major exchange may be imminent. Nigerian digital payments company Interswitch will likely go public on the London Stock Exchange (LSE) in 2016, sources confirm.
The Lagos based fintech firm, majority owned by private equity group Helios Investment Partners, provides much of Nigeria’s digital finance infrastructure. Founded in 2002, Interswitch’s product platforms process the bulk of the country’s growing volume in electronic bank, government, and corporate financial transactions. In personal finance, 32 million consumers use the company’s Verve chip and PIN cards, while its Quickteller digital payment app processed $2.4 billion in transactions.
On a pending IPO, Interswitch CEO and founder Mitchell Elegbe confirmed, “a dual-listing on the London and Lagos stock exchange is an option on the table. But “It’s not the only one,” he explained, “to facilitate potential exits” by the company’s private equity investors. “We are also looking at a possible trade sale,” Elegbe said on a telephone call from Lagos.
Though Interswitch’s CEO would not confirm a 2016 IPO, two sources said the company’s listing is imminent.
“They’ve already selected the ibankers and will likely go public sometime between Q2 to Q4 at (or close to) a $1 billion dollar valuation–roughly two times revenues,” said Eghosa Omoigui, Managing Partner of EchoVC, a Silicon Valley fund investing in African startups.
“This is similar to what I’ve heard,” said a another Nigerian startup head who asked not to be named, but whose company is also backed by one of Interswitch’s investors. “Look for them to launch on the LSE in 2016, just north of $1 billion,” the source confirmed.
Any billion dollar liquidity event, whether an IPO or trade sale, would mark a milestone for African tech, which to date has produced only a handful of exits and no major public listing.
Across the continent, a burgeoning IT sector is emerging parallel to growth and reform in core economies. In countries such as Nigeria, Kenya, and Ghana, broadband capacity is improving, smartphone penetration is rising, and many business sectors are formalizing. Added to this are the demographics of a youth driven consumer market expected to spend over $1 trillion annually by 2020.
This equation creates strong tech opportunities for ventures focused on digital commerce and payments. Some VC investors have taken note, supporting African consumer goods, digital content, and fintech oriented startups to the tune of $400 million in 2014, according to Crunchbase supported research. Interswitch investors Helios Partners and Adlevo Capital also back ventures such as ecommerce platform MallforAfrica and Nigerian payments firm Paga.
When it comes to digital finance in Africa, discussions usually lead to Kenya’s M-PESA product, run by telco Safaricom. The mobile money platform, recently profiled by “60 Minutes,” is now used by 13 million customers, transfers $12 billion in P2P payments annually, and generated 20 percent of Safaricom’s 2014 $1.5 billion revenues.
But M-PESA has not found similar success elsewhere in Africa and is facing stiffer competition from banks, telcos, and other fintech firms (including Visa and Mastercard) eager to challenge its Kenyan dominance and scale new apps to Africa’s digital finance market.
Many point to Nigeria as the continent’s greatest revenue opportunity for electronic payments given its dual status as Africa’s most populous nation (175 million) and largest economy ($510 billion). Consumers in the West African country spend $400 million annually and are projected to generate $75 billion in ecommerce revenue by 2020.
Nigeria’s P2P digital payments traffic compared to Kenya, however, has been slower to scale–largely due to entrenched consumer preferences for cash and a more cumbersome fintech regulatory environment. A 2014 Gates Foundation study estimated Nigeria’s e-payments revenue potential at $1.2 billion if it attained Kenya’s volumes.
Interswitch continues to build digital finance market share in Nigeria and broader Africa. It operates in five African countries and recently launched its Verve payments product on Safaricom’s home turf after acquiring Kenya’s Paynet. Interswitch CEO Elegbe said a possible IPO would also support the company’s plans to expand into additional African countries.
As for Interswitch possibly becoming Africa’s first tech unicorn, “It’s obviously good for the market to demonstrate African tech companies can generate that level of revenue,” said EchoVC’s Omoigui. “On the question of exits and IPOS, we’ve gone from ‘if’ to ‘when’ to potentially ‘who next?’. Minting our first fintech unicorn will make a lot of VC investors take African tech much more seriously.”