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September 2, 2022

Sabi to Turn to M&A as it expands to francophone Western Africa | Mergermarket
BY: CARLOS MARTINEZ

Sabi, a Nigerian B2B platform for informal merchants, will evaluate M&A options as it expands to francophone Western African countries, co-founder Ademola Adesina said.

“To the extent, there are strategic inorganic [options] to accelerate entry, we are definitely up for it,” he said. “We are very aggressive in our growth; for us growth means everything.”

The Lagos-based company is open to evaluating acquisition or joint venture opportunities, the co-founder said.

Sabi has already started establishing a presence in the Democratic Republic of Congo and Ivory Coast and plans to expand to more francophone African countries, he noted.

The company earlier this month announced it will open a new office in Johannesburg in a JV with South Africa- based technology platform Vumele. Sabi has the option to increase its stake in the JV in the future, Adesina said.

In the long term, the company could venture into Latin America, “which has a lot of similarities relative to the size of the informal economy,” the CEO said.

In 2018, 45.2% of South Africa’s labour force worked in the informal economy, slightly higher than the 44.1% in Argentina, according to the World Bank, citing data from the International Labour Organization. And in Mexico, 57.7% of the labor force works in the informal economy, according to the country’s data-gathering agency Inegi.

New funding round

Sabi, which has yet to reach break-even, is working to raise a new capital round to fund its continental expansion, Adesina noted. It hopes to close the round “in the next few months,” he said.

Several global venture capital firms based in Asia, Europe, and the US have expressed an interest in participating in the round, the executive said. Sabi has also talked to some strategic investors, he added.

Despite helping informal merchants grow their businesses and eventually shift to the formal economy, no ESG- focused investment firm has approached the company yet, Adesina said.

Sabi, however, is currently in talks with a European development financial institution that is interested in participating in its upcoming funding round, he added.

Bloomberg reported in April that Sabi planned to raise USD 125m in a Series B round.

The company raised USD 15m earlier this year, the co-founder said without offering more details. Its capital pool includes CRE Venture Capital, Atlantica Ventures, and Waarde Capital.

Sabi’s technology allows informal merchants, or traders without access to traditional business or financial services, to connect with the right suppliers. It also helps them set up their e-commerce shops and provide logistics services and working capital loans through third-party providers, according to a press release announcing its JV with Vumele.

The company wants to facilitate much larger working capital loans in the next few months, either through its regulated financial partners in Kenya, Nigeria, and South Africa or by starting to originate the loans itself, Adesina said.

A month and a half ago it facilitated USD 20m-worth of loans per month, compared with USD 200,000 a year ago, he noted.

The company booked a USD 500m annualized gross merchandise volume as of July 2022.

Several companies in Asia and the US have approached Sabi about leveraging its data sets to learn more about who is buying their products, the co-founder said, adding that it is currently in talks with a few of them.

“For example, large FMCG [fast moving consumer goods] manufacturers today have very little visibility to [learn] who’s buying their products,” he said. “They know what distributors are buying from them, but which wholesalers those distributors are selling to, which retailers are buying from those wholesalers and, ultimately, which consumers are buying from those other guys, there is almost no visibility, in fact, there is no visibility there.”

Asked how surging inflation, rising US interest rates, supply chain woes, and the war in Ukraine have affected Africa’s informal merchants, Adesina noted the main effect has been a change in consumer preferences.

“Old staple companies that have been around and providing products for decades are being switched out for the lower cost, often Chinese, imports that are more price competitive,” he said. “Price has become the primary deciding factor these days; more than brand or history.”

The rise in fuel costs has forced Sabi’s logistics, fulfillment, and warehousing partners to increase their fees to informal merchants, he added. “[But] it has actually made us more attractive because of economies of scale,” he said. “By bringing greater supply of merchants we’re able to negotiate more aggressive pricing than a merchant would be able to do individually.”

Adesina co-founded Sabi in 2021 alongside CEO Anu Adasolum.

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