Top 3 SPAC Targets – Africa
by Nicholas Alan Clayton on 2022-07-22 at 7:24am

 

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies on the African continent. We look at why they are compelling and why each could be a fit for a blank-check merger.


Although the SPAC backlog has lessened somewhat, there are still 588 US-listed SPACs searching for a target and 171 of those have six months or less to find one. With that level of competition, more teams may be wise to look further beyond the US market for ideas.

That shift is already occurring as 16 of the last 50 SPAC deals announced (dating back to March 22) were with targets headquartered abroad. But while Europe, Latin America and Asia have all had a share of this volume, the African continent has largely been left out of the SPAC boom.

But, Globis blazed this trail by closing a combination with Moroccan grain processor Forafric (NASDAQ:AFRI) on June 10. It’s been so far, so good since this debut and the company closed Thursday at $10.30. Nonetheless, instability perceptions and the sheer distance between many African companies and major capital markets have made it an uphill journey for many to list.

For that reason, the geography may hold more than its fair share of profitable private businesses in the sorts of “boring” fundamental categories like Forafric that the present macro conditions could appreciate. Alongside this, faster-growing African enterprises that have relied on venture funding in the recent past may not have access to that well for growth should the US and other developed markets enter a recession.

About 80% of the $5.2 billion in equity investments into the continent’s ventures last year came from international funds and this was a big jump from 2020 and 2019 when African capital raises totaled $1.4 billion and $2 billion, respectively, according to Partech Partners. For high-growth African businesses like fintechs and other emerging consumer technology players, capital could grow scarce amid the broader VC pull-back.

Even if those sectors are not being favored in Western capital markets at the moment, the longer-term opportunity for Africa is clear and its venture capital crunch may present opportunities for SPACs to buy low into high-upside opportunities.

Africa is expected to have a population of 1.7 billion by 2030 with combined consumer and business spending of $6.7 trillion. This population is also urbanizing at a rapid rate with the number of African cities of over 5 million people expected to roughly double from nine to 17 by this time. That brings with it the opportunity for local digital consumer products and services companies to be first-movers in a variety of categories.

PalmPay

Payments is of course one of these categories.

Among the advantages of rapid development is that emerging economies can skip a few generations of technology and get straight to the good stuff. Globally, more people have mobile phones than toilets, according to the World Bank, and the juxtaposition of high mobile phone usage alongside underdeveloped infrastructure is particularly pronounced in Africa.

As a result, phones capture even more of local commerce on the continent than in more developed economies. Rural farmers use mobile apps to check spot commodity prices by market and mobile banking is enormously popular. In fact, in December 2018, two-thirds of global mobile money transactions were made between users in sub-Saharan Africa.

Lagos-based PalmPay has racked up 5 million users so far on its smartphone app, which is the next step for a continent that has already been doing its banking for years on flip phones. Like Venmo – acquired by PayPal (NASDAQ:PYPL) in 2012 – all transactions on the app are free. And while it can be used for Venmo-like interpersonal payments, PalmPay has also integrated a number of utilities and other common bills that can be paid to its app and has rolled out point-of-sale devices to make it a more common solution for retail shopping.

PalmPay may also fit into the category of company that is searching for a funding round that may not materialize in the private markets. It raised $100 million in its August 2021 Series A, but in approaching the one-year anniversary of this move, it may already have its ears open for the next move.

One of those talking on the other end could be Frontier Investment Corp. (NASDAQ:FICV), which raised $200 million in July 2021 to search for technology targets. It specifically mentioned the high volume of mobile payments in sub-Saharan Africa as an area of opportunity in its initial S-1.

BetKing

Similarly, BetKing has spent 10 years setting itself up as a go-to betting platform in Africa’s most populous market, Nigeria.

It was boosted to a $908 million valuation in June 2021 by a $281 million capital raise. This was a strategic investment by Johannesburg-listed telecom MultiChoice (JO:MCG), which increased its stake in the company from 20% to 49% with the move. MultiChoice would both likely see the advantages to listing BetKing in a spinoff and pitching an “African DraftKings” to US investors may well be an easier task than other more complicated industries.

But, like DraftKings, BetKing has designed itself to match its home market. In addition to offering online betting on a wide range of sports, it also allows individuals to sign up to become a channel for offline bets, effectively becoming bookies themselves – BetKing prefers the term “Kingmaker.” Its wide spread of sports betting opportunities has also spread to esports, and thus could be a conduit to a sort of shorter-term investment in recently de-SPAC’d esports team FaZe Clan (NASDAQ:FAZE).

The platform reportedly turned about $78 million in revenue in 2020 and Africa’s gaming market is expected to grow at a CAGR of about 12% through 2026. There is plenty of white space in its grasp as well, as it has so far focused its efforts on the large Nigerian market but, like DraftKings, it could fund a push into new markets with cash gathered in a SPAC deal.

Sedibelo Platinum Mines

But for investors inclined to the market’s current focuses on cash generation, the money may still be on Africa’s natural resources companies.

South Africa-based Sedibelo posted $59 million in EBITDA from its mining activities in 2021 and remains a private company, although its ownership is spread amongst a variety of institutional and strategic natural resources investors. Its largest shareholders are the local Bakgatla Ba Kgafela Tribe with 25.7% and state-owned Industrial Development Corporation with 15.7%. The rest of its equity held by largely international investors with stakes in single-digit percentages.

This marks an opportunity to both provide these investors with liquidity options, but also for US investors to get into the platinum-mining business at an interesting time. Sedibelo is focused on mid-tier platinum group metals (PGM) including palladium, ruthenium and iridium.

These are commonly found together and are valuable both as jewelry metals and industrial ingredients in things like EV batteries. Furthermore, Russia is the second-largest PGM producer and sanctions are gradually cutting it out of the market.

The company has already made a strong ESG pivot and will soon power a majority of its mines’ electricity from renewable sources, having appointed an ESG officer in December. Sedibelo is likely already in the crosshairs of African Gold (NYSE:AGAC), which is looking for a natural resources target with a $414 trust to spend.

But it would also fall well within the wheelhouse of TB SA Acquisition Corp. (NASDAQ:TBSA), which raised $200 million in March 2021 to hunt for opportunities in South Africa and the wider region.

 

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