Nigerian digital financial institution FairMoney in talks to purchase Umba in $20 million all-stock deal, sources say

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Truthful cashdigital financial institution based mostly in Lagos and headquartered in Paris, is in discussions to accumulate Subjecta credit-focused digital financial institution offering payroll and monetary companies to purchasers in Nigeria and Kenya, in a $20 million all-stock deal, sources instructed TechCrunch.

The transfer demonstrates FairMoney’s curiosity in rising its buyer base by increasing to extra nations, notably Kenya. However it additionally highlights the challenges dealing with fintechs in Africa in a troublesome international marketplace for startups: A $20 million all-stock deal could be roughly equal to the quantity Umba raised from outdoors traders.

Acquisition negotiations are nonetheless of their early phases, in line with the sources, who requested anonymity because of the confidential nature of the small print. FairMoney and Umba didn’t reply to requests for remark earlier than publication.

Umba, based by Tiernan Kennedy and Barry O’Mahony in San Francisco in 2018, launched as a credit-focused digital financial institution concentrating on rising markets. It supplies banking companies akin to loans, present accounts, financial savings accounts, fastened deposit accounts and invoice fee to prospects in Nigeria and Kenya.

Up to now, the digital financial institution has secured roughly $20 million in funding, in line with PitchBook. information. Its traders embrace Costanoa Ventures, Monzo co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital and Streamlined Ventures.

In the meantime, FairMoney has been supported by Tiger World, DST, Speedinvest and others and has raised simply over $57 million, in line with Presentation ebook. It was final valued at $400 million to $500 million following a spherical of bridges final yr.

FairMoney, finest identified for its lending companies in Nigeria, is searching for new avenues for enlargement. In 2020, FairMoney entered ambitiously India as second markethowever past a momentum replace in 2021he hasn’t made any more moderen disclosures about how this enterprise is doing.

FairMoney has additionally expanded its product. The startup’s eponymous app was initially launched as a digital lender in Nigeria six years in the past. Since then, different monetary companies have been added, akin to debit playing cards, transfers and funds. It claims to have greater than six million retail prospects.

FairMoney’s earlier acquisitions included Payforcea sub-brand of N supported by YCNigerian service provider funds service CrowdForce, which it acquired in a money and inventory deal value $15 million to $20 million.

“We think about ourselves a retail financial institution, however the line between retailers and retailers is commonly blurred,” FairMoney CEO Laurin Hainy instructed TechCrunch in an interview final yr across the PayForce acquisition. “We’re pondering increasingly concerning the service provider house and we see a whole lot of potential synergies between what we and PayForce have constructed independently.”

Umba additionally began as a retail-focused digital financial institution in Nigeria earlier than diversifying its choices to incorporate service provider finance and enterprise banking merchandise within the West African nation in addition to Kenya. Google Play studies over 1 million installs of its app, however the variety of registered and energetic customers shouldn’t be disclosed.

FairMoney’s potential acquisition of Umba might not solely rely on person numbers or product choices. On the one hand, Umba has launched merchandise geared toward retailers and companies over the previous 4 months, so it’s unlikely that it has generated vital traction and volumes throughout this era. FairMoney might in all probability be extra excited about Umba’s microfinance license, obtained in 2022 by the acquisition of a majority stake in Daraja Microfinance Financial institution. This license permits Umba to supply banking companies in Kenya.

Acquiring a microfinance financial institution license in Kenya could be troublesome. In contrast to Nigeria, which has greater than 600 microfinance financial institution licenses, Kenya has solely 14. For FairMoney, the acquisition of Umba might streamline entry into Kenya, bypassing the prolonged licensing course of that took three years in Umba. As such, an acquisition might permit FairMoney to leverage Umba’s current infrastructure or mix the 2 fintech capabilities to launch its companies in Kenya.

Sources inform us that even when Umba wasn’t actively searching for a sale, it’d discover FairMoney’s supply attractive, particularly given its present monetary scenario. Between January and June 2023, the fintech generated $335,000 in income whereas incurring $1.54 million in bills, as outlined in an investor pitch deck obtained by TechCrunch.

Moreover, after acquiring a $15 million Collection A funding spherical With a valuation of $60 million as of February 2022, Umba requested further funding final December. In the end, it raised a $1.55 million seed spherical at a valuation of simply $25 million, which is consistent with FairMoney’s supply. The fintech might think about different choices, in line with the sources.

Amid the fintech growth, digital banks and challenger banks in Africa have attracted tens of tens of millions of {dollars} in enterprise capital investments, spurring the emergence of many gamers searching for to compete with incumbents.

Now the story is completely different. Enterprise capital funding continues to tighten, and lots of the large bets usually are not coming to fruition as anticipated as firms have failed to fulfill their development targets and confronted troublesome unit economics. This has led to extra conversations about mergers and acquisitions. This month once more, the Nigerian neobank Carbone acquired Vella Finance, a banking companies supplier centered on SMEs. And FairMoney’s potential acquisition of Umba, if profitable, would mark its second transaction in two years.

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