Sources: Wasoko-MaxAB e-commerce merger faces delays due to unfavorable headwinds in Africa

Last December, rival Nairobi and Wasoko, Cairo-based MaxAB – two B2B e-commerce startups that enable retailers to order fast-moving consumer goods (FMCG) from suppliers through their respective apps – announced a planned “merger of equals “. The goal was clear: to create higher economies of scale in a sector that has much promise in the region but has faced significant challenges in the wake of the Covid-19 pandemic.

However, nearly seven months later, prolonged due diligence due to ongoing restructuring and macroeconomic headwinds delayed the closing of the deal, according to two people acquainted with the matter who told TechCrunch on the condition of anonymity. The transaction was to be finalized in the primary quarter of this yr.

The delay is important in part due to the high-profile nature of this transaction to date. This has been described as ” largest merger in African e-commerce” of each corporations. But despite the fact that neither company has specified the scale or value of the deal, each are significant players who’ve collectively raised a whole lot of hundreds of thousands of dollars from several high-profile investors. How it develops becomes a barometer of the general health of the B2B e-commerce market in the region.

When the proposed merger was first announced, B2B e-commerce players operated in eight countries. This number has now dropped to 4: Kenya, Rwanda, Tanzania and Egypt, where dozens of layoffs have occurred following job cuts.

There can be talk of a review of shares in the brand new, combined holding company. Initially, Wasoko was to hold a 55% stake in the brand new entity, while MaxAB was to retain 45% based on revenues at the top of December. We understand that this share is currently under review due to the huge devaluation of the Egyptian pound in March. According to sources, MaxAB, which is disadvantaged by its presence in Egypt, may agree to the review because it urgently needs to complete the merger due to its severely damaged runway.

Both corporations say they’ve received additional investment to provide enough runway to reach profitability, but sources say they’re still in talks to raise additional financing once the merger is accomplished. None of them provided details concerning the newly collected funds.

In any case, attracting recent investors may prove difficult in the present funding climate (particularly for the B2B e-commerce industry, which has faced some headwinds over the past yr and a half), unless each corporations quickly adapt their operations, shifting focus from high growth revenue to scale profitably by improving gross margin and potentially introducing recent services to expand customer touchpoints, similar to more financial services and marketing offerings.

That or, perhaps more realistically, drastically cutting costs by streamlining overlapping business structures.

So far, Wasoko and MaxAB have done this by shedding employees, parting ways with key managers and suspending operations in some markets. These latest moves suggest that the brand new entity will likely serve fewer than the 450,000 retailers listed in the merger announcement. By comparison, Wasoko’s website currently says it has 50,000 retailers.

As the merger approaches, the CEOs of each corporations will proceed to function full-time directors, but in different roles.

Wasoko CEO Daniel Yu will deal with investor relations, HR and fundraising, while MaxAB CEO Belal El-Megharbel will handle internal matters similar to technology and operations, according to sources acquainted with their recent responsibilities. According to sources, El-Megharbel took control of the Kenyan operations and oversaw significant restructuring under the brand new entity, which led to a discount in monthly combustion costs from $2 million to $500,000; As a result, gross merchandise value (GMV) also declined. Wasoko reported $300 million in annual GMV in 2022.

“Regarding our merger with MaxAB, it must be said that the process is proceeding as expected and in line with the original conditions. Mergers of this scale typically require a long time to finalize once initial terms are signed, and the process is proceeding as planned,” a Wasoko spokesperson told TechCrunch. “In light of the continued nature of the merger, we’re unable to comment on speculation regarding the finer details of the merger at the moment. We strongly encourage all interested parties to rely only on official communications from our team for accurate details about our activities.

Tiger Global, Silver Lake, Avenir and British International Investment were among the many high-profile investors who pumped a complete of greater than $240 million into Wasoko and MaxAB before the merger.

However, 4DX Ventures, a pan-African investor that has backed each corporations in their early rounds and growth stages, is the firm overseeing the merger and facilitating ongoing discussions. The valuation of this recent entity stays uncertain, but in the fourth quarter of 2023, considered one of Wasoko’s investors reduced its valuation to $260 million, as TechCrunch previously reported.