Airtel Africa is set to sell an undisclosed minority stake in its Pan-African mobile money business to private equity firm TPG for $200 million (Sh21.9 billion), underlining the huge value of mobile financial service platforms.
The multinational announced the transaction Thursday through the London Stock Exchange where it is listed.
The record-breaking deal values Airtel Money, available in Share sale to private equity comes amid struggle to cut M-Pesa dominance in the Kenyan market 14 African countries including Kenya, Malawi and Uganda, at $2.65 billion (Sh291 billion).
TPG is investing in Airtel Money through its investment vehicle The Arise Fund.
“With today’s announcement we are pleased to welcome The Rise Fund as an investor in our mobile money business and as a partner to help us realise the full potential from the substantial opportunity to bank the unbanked across Africa,” Raghunath Mandava, CEO of Airtel Africa, said in a statement yesterday.
The transaction indicates that the rival M-Pesa platform, available in Kenya and five other African markets such as Tanzania and Mozambique, could be valued even higher.
Airtel Money generated revenues of $548 million (Sh60.1 billion) in the African markets in the six months ended September 2020 when active users of the platform stood at 21 million.
M-Pesa had 55 million customers and its total revenue, including Kenya, over the same period stood at R8 billion (Sh59.5 billion).
Airtel says the cash raised from the deal with TPG, expected to be completed in four months, will be used to reduce debt and invest in network and sales infrastructure in the respective operating countries.
The Arise Fund is investing in Airtel Money in two stages that will see it pay an initial $150 million and later $50 million.
The fund will buy the undisclosed stake in Airtel Mobile Commerce BV (AMC BV) – the company that will own and operate the mobile money business across all of the multinational’s 14 markets in Africa.
TPG has also been given the option to sell its stake back to Airtel in the future at a maximum price of $400 million (Sh43.9 billion) or double what it is investing now.
“The transaction is the latest step in the group’s pursuit of strategic asset monetisation and investment opportunities, and it is the aim of Airtel Africa to explore the potential listing of the mobile money business within four years,” the telecoms operator said in a statement.
“The group is in discussions with other potential investors in relation to possible further minority investments into Airtel Money, up to a total of 25 percent of the issued share capital of AMC BV.”
The sale of more shares in the mobile money platform will boost the telco’s war chest and raise competition in the lucrative African mobile financial services business.
Both Airtel, Safaricom and South Africa’s Vodacom Group see mobile money as presenting growth and diversification opportunity and have invested billions of shillings to develop new offshoots of their platforms’ core offerings of cash transfers and payments.
“Mobile money continues to be one of the Airtel Africa’s fastest-growing business segments, delivering revenue growth of 30.4 percent in first half of the year [ended September]. It is an increasingly important part of our business and currently accounts for 10.3 percent of our total revenue in constant currency,” the multinational said.
“We aim to drive the uptake of Airtel Money services in all our markets, harnessing the ability of a profitable mobile money business model to enhance financial inclusion in some of the most ‘unbanked’ populations in the world.”
Airtel added that the low uptake of traditional banking services continues to be the main driver of demand for mobile money services.
The platform currently offers mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit card and international money transfers.
The multinational has sought to expand the subscriber base and use of its mobile money platform through partnerships with multiple financial service firms.
It has, for instance, signed agreements with cash remittance companies MoneyGram, Mukuru and WorldRemit.
The telecoms operator also plans to introduce new banking and remittance services in partnership with London-based lender Standard Chartered Plc, which has subsidiaries operating in 16 African markets.
Airtel Money has struggled in the Kenyan market where it has less than 400,000 active customers against M-Pesa’s 27 million, according to the Communications Authority of Kenya (CA). The service is, however, more successful in other African markets.
Vodacom and Safaricom, which jointly own the M-Pesa platform, have similar plans to expand its customer base outside Kenya, including through rollout of new services and partnerships.
M-Pesa launched as a person-to-person cash transfer service but has grown into payments and credit. The owners of the service are keen to grow the uptake of additional services such as investing and insurance.
“M-Pesa offers a unique opportunity to extend our reach further into financial services,” Vodafone Group Plc, the parent company of Safaricom and Vodacom, said in a past statement.
“Through a strategic technology partnership with Alipay, we are developing a new ‘super app’ that will offer customers a unified suite of financial services, entertainment, shopping, merchant services and direct marketing.”