African companies must recognise strategic M&A as the most viable exit strategy, says investment bank CEO

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Impacted by global economic issues and geopolitical tensions, African companies have faced a challenging 12 months in terms of VC-backed activity. However, for any founders considering their best route to a profitable exit, one option has emerged as the obvious choice: acquisition.

This trend is highlighted by Pitchbook data evaluating the African VC ecosystem in Q1 2024, which revealed that of all the exits achieved across the period, each and every one was secured via acquisition. In contrast, no public listing or buyout deals were completed.

According to Victor Basta, CEO and Founder of investment bank DAI Magister, African CEOs should understand the value of M&A as a path to a successful exit, ensuring they are bought (not sold) to maximise valuations.

Basta said: “VC funding has dipped over the past couple of years on the African continent, with growth-stage companies seeking continued expansion struggling to find willing investors. On the other hand, we’ve seen the African M&A sector evolve, largely driven by a host of large overseas companies looking to tap into a new market, diversify their client base and leverage innovations that will enhance their offerings.

“This shift is also a result of the growing maturity of Africa’s business lifecycle. Whereas a decade ago the scene was rife with startups at too nascent a level of development for acquirers to consider, now there are a host of growth stage companies that are attractive to buyers.

“Once African founders begin to appreciate the significant profits M&A exits can yield, they can then pursue a range of tactics that will help secure high valuations. All strategies are built on thorough and targeted preparation, keeping in sight the end goal of being bought, rather than sold.

“The first step is identifying the right buyers to approach, who must have both clear synergies and the financial capacity to meet the expected asking price. This means pinpointing the appropriate pool of buyers, displaying a deep understanding of their position within the value chain and demonstrating the incremental value a smaller target would bring to their strategy.

“A basic M&A prep template to then follow includes conducting a strategic review of the business, developing and evolving external positioning, refining corporate materials to reinforce key messages, stress-testing business plans and financial models to stand up to buyer due diligence, defining key value risks in a deal and engaging potential buyers in stages.

“The main disadvantage for African startups to overcome is a lack of visibility, with many buyers possessing only superficial knowledge of even sizeable African targets to acquire. Building awareness is the key to garnering the right kind of interest and making the most of acquisition as the continent’s most common form of exit.”

Basta concluded: “The statistics are already outlining M&A’s credentials as the pathway to a successful exit for African founders, but the market is still in an early phase in comparison to other regions. As more growth stage players emerge and overseas interest continues to build, expect to see companies that have devoted resources into cashing in on this opportunity secure the highest value exits.”

About DAI Magister

DAI Magister helps clients transform our world one transaction at a time, through essential guidance, creative insights and rigorous execution. Backed by DAI, one of the largest global development firms, DAI Magister is a boutique investment bank offering full advisory services for transactions within the climate tech, B2B SaaS, fintech, deep tech and healthcare technology sectors.

From New York and London to Nairobi, we support CEOs and their investors by identifying and curating the right relationships to help grow, scale, and manage their business. DAI Magister focuses on advising international technology and climate companies, developing and executing strategic sell-side M&A and growth financings. No matter the challenge or complexity of a transaction, DAI Magister’s exceptionally high success rate makes it a reality.