Johannesburg-based Net 1 UEPS Technologies is acquiring the Connect Group for R3.7 billion as part of a transformation into South Africa’s leading fintech platform, offering payment processing and financial services to underserved merchants and consumers.
Net 1 jumped 21.74 percent to R100 late yesterday afternoon on the JSE as the market reacted positively to the transaction.
Chief executive Chris Meyer said the transaction was part of efforts by the new management and board to turn the company around from a cash logistics business to a fully-fledged and profitable financial services platform.
He said too often its target market was under-served, neglected and overlooked and acquiring Connect Group advances the group’s mission of financial inclusion by bringing 44 000 micro, small and medium enterprises (MSMEs), many of whom are informal businesses.
“The acquisition of the Connect Group transforms our merchant offering, MSME footprint and growth trajectory, while also uniquely positioning us to be the South African market leader serving both merchants and consumers,” said Meyer.
Net 1 expects the transaction to close by the first quarter of next year, given it is subject to regulatory approvals including the green light from the Competition Commission.
Meyer said the group believed, among others, that it filled four key gaps in its product offering: the provision of value-added services directly to MSMEs, digitised cash management, merchant acquiring and merchant lending.
“On the other hand, Net1 brings issuing, insurance and consumer financial services infrastructure to the Connect Group.
“Offering multiple products to a single customer reduces churn, increases take-rate and improves unit economics,” he said.
He said while Net 1 had an established presence among formal enterprises, it does not currently serve South Africa’s estimated 1.4 million informal MSMEs. Meyer said the Connect Group served over 35 000 informal MSMEs and was a leading provider of financial services to this growing customer segment.
Founded in 2006, Connect Group’s value proposition included growth opportunities for continued development within its current addressable market, estimated at more than R100bn in merchant financial services for MSMEs in South Africa, Net 1 said.
Connect Group chief executive Steven Heilbron said as a standalone business, Connect Group had become one of South Africa’s fastest-growing fintech businesses serving MSMEs.
“I am very confident this transaction fast-tracks the combined businesses which together, now has the essential and differentiated building blocks required to deliver on the focused objective of being the leading South African fintech platform.
“We believe that this transaction will create distinct field advantages and will take the group to heights that neither entity would achieve alone,” Heilbron said.
The acquisition will be funded through R2.35bn of debt, and deferred consideration of R350 million to be settled through the issuance of roughly 3.1 million Net1 shares of common stock at an issue price of $7.50 (R115) per share and payable in three equal tranches on the first, second and third anniversaries of the transaction closing.
Net 1 placed subsidiary Cash Payment Services (CPS) which used to pay social grants into liquidation last year.
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