OPINION: Valuing multi-sided platform companies
CAPE TOWN - The top five listed companies in the world –have a combined market cap of more than $3 trillion (R36trln) – are all multi-sided-platforms (MSPs). Apple, Alphabet (Google’s parent company), Microsoft, Amazon, and Tencent are leading the way in how businesses are evolving.
Globally MSPs have reverse integrated into content providers/platforms in order to maintain what is called, peak or prime audiences.
Alibaba acquired the South China Morning Post and Jeff Bezos of Amazon acquired the Washington Post for example.
What makes these MSPs so interesting and valuable, are their margins. MSPs typically generate huge margins, they can run at 60 percent to 70 percent as opposed to traditional market companies at anywhere between 15 percent and 35 percent.
Doing it for Africa, Sagarmatha Technologies presents a fully-integrated MSP using 14 different business sectors, some of which are already rolled out and others will follow, ultimately providing consumers with peak offerings.
In South Africa, the content platform Independent Media and its digital brands and the e-Commerce platform, Loot.co.za, have shown that deep integration delivers deep benefits.
Content needs e-Commerce, and e-Commerce needs content. Consumers need both. “What we’ve done is bring it all together, using technology to unlock and enable the various different systems.
We call this a multi-sided platform,” explained joint chief executives, Grant Fredericks and Gary Hadfield, when asked to unpack what Sagarmatha does.
Since announcing its intention to list on the JSE, Sagarmatha has attracted some attention – from local and an increasingly interested international base of investors, well used to the term multi-sided platform (MSP).
The concept to build one in Africa is certainly novel… and bold.
Take several legacy businesses, a very successful e-Commerce platform, and proprietary technology and mix them up to service Africa’s growing digital population.
As with all pioneering moves, boldness is subject to a lot of scrutiny, and in this case, also some misunderstanding.
The technical definition of an MSP (or market as it is also known) is where two or more interdependent groups who need each other, in some way shape or form, come together on one platform.
Examples of successful ones include the likes of Uber, Airbnb, Facebook, Amazon and so on.
But for every successful one, there are many more failures.
This makes Sagarmatha’s bid to be the first successful African Unicorn MSP, even more daring, and for those driving the business, more determined to get it right.
It’s taken some time to put all the pieces in place – in fact, according to Hadfield, also Managing Director of Loot.co.za, it has taken nearly 18 months to jump through the hoops, regulations, and requirements to get to this point.
But he doesn’t doubt that a hook-up with Independent Media was the right choice from the beginning.
“Loot’s figures over the past three years since we started working with Independent Media have been impressive. We have consistently grown and we put that down in the main, to the increased media exposure we have through the right media partner – print campaigns have been used for brand building, promoting special deals, building consumer trust and communicating Loot’s value proposition.
“This completely underlines the direction we are going with Sagarmatha – e-Commerce needs media and vice versa.”
Of course, to value an MSP in Africa, and one that to all intents and purposes is a Unicorn takes some doing – since it’s not been done before.
As per the rules of any stock exchange though, the JSE included, valuations are critical to the listing process.
In Sagarmatha’s case, even more so, given the complexity of its structure and what it plans to do. These valuations also take time – prescribed in the rules.
Members of Sagarmatha’s International Advisory Board, strategic partner, and investors, independently contracted Redwood Valuation Partners, a world-class technology valuation company from Silicon Valley.
Redwood has conducted valuations for hundreds of technology companies including FitBit, Visa, and WhatsApp.
A Valuation was done to meet the strict requirements of the JSE, as it is the first African Unicorn to list on any African exchange and possibly in the world.
Grant Fredericks who heads up the content side of the business, and Sagarmatha’s joint chief executive, believes; “Sagarmatha is uniquely positioned to create an integrated MSP ecosystem in Africa, one that knits technology platforms – content creation, distribution, and e-Commerce – into a consolidated value proposition. “We know the world is looking at us because multi-sided-platforms are the way forward for businesses in general but Africa specifically.”
Adri Senekal de wet the Executive Editor at Independent Media Business Report.