Net1 has received approval from the South African, Botswanan and Namibian competition authorities in respect of its acquisition of 100% of the shares and claims in the Connect Group.
The merger was approved unconditionally by the Botswana and Namibia competition authorities on 12 January 2022 and 24 February 2022 respectively, and by the South African competition authorities on 9 March 2022, subject to the merger conditions described below.
The transaction completion is still subject to the finalisation of certain outstanding conditions precedent, as described further below.
Chris Meyer, CEO of Net1 Group, comments: “We welcome the decision by the competition authorities in approving the acquisition by Net1 of the Connect Group, subject to certain conditions.
“This approval is a major milestone towards the completion of the transaction, and we are looking forward to integrating Connect Group into Net1. This landmark acquisition will advance our shared mission of financial inclusion by offering payment processing and financial services to underserved merchants and consumers.”
Steven Heilbron, CEO of Connect Group, adds: “The approval by the competition authorities is an important milestone towards closing the transaction. We believe the combined Net1 and Connect Group management teams will be able to drive significant growth and create a truly unique entity that will advance greater financial inclusion in our country.
“We are looking forward to the conclusion of the transaction and the start of a new journey that will see Net1 and Connect Group reach ever greater achievements.”
The South African Competition Tribunal approved the transaction subject to certain public interest conditions relating to employment, increasing the spread of ownership by historically disadvantaged people (HDPs) and workers, and investing in supplier and enterprise development.
Further to increasing the spread of ownership by HDPs: Net1 is required to establish an employee share ownership scheme (ESOP) that complies with certain design principles for the benefit of the workers of the merged entity to receive a shareholding in Net1 equal in value to at least 3% of the issued shares in Net1.
If, within 24 months of the implementation date of the transaction, Net1 generates a positive net profit for three consecutive quarters, the ESOP shall increase to 5% of the issued shares in Net1.
The final structure of the ESOP is contingent on Net1 shareholder approval and relevant regulatory and governance approvals.
The following conditions precedent for the transaction remain outstanding, and are expected to be fulfilled by the end of March 2022:
* Net1 has confirmed that the facility agreements for the funding of a portion of the consideration for the acquisition Connect Group have become unconditional, including the fulfilment of the conditions precedent which are under Net1’s sole control.
* The counterparties to designated agreements have consented to the change of control over the companies in the Connect Group that will result from the implementation of the acquisition of the Connect Group.
Strategic Rationale
Net1 aims to become a leading fintech platform for underserved consumers and merchants in South Africa. The acquisition of the Connect Group significantly advances that vision and is transformational for Net1.
It believes the combination of Net1 and the Connect Group is strategically important for the following reasons:
* Combining complementary product offerings to drive stronger unit economics: the Connect Group fills four key gaps in Net1’s product offering, namely the provision of value-added services directly to MSMEs, digitised cash management, merchant acquiring and merchant lending. On the other hand, Net1 brings issuing, insurance, and consumer financial services infrastructure to the Connect Group. Offering multiple products to a single customer reduces churn, increases take-rate, and improves unit economics.
* Expansion of addressable market in informal MSMEs: while Net1 has an established presence amongst formal enterprises, it does not currently serve any of South Africa’s estimated 1,4-million informal MSMEs. Connect Group serves over 35,000 informal MSMEs and is a leading provider of financial services to this growing customer segment.
* Attractive financial profile with strong and profitable growth: the Connect Group has delivered exceptional historical growth in throughput, revenue, earnings, and free cash flow. Further, there is significant room for continued growth, supported by secular tailwinds.
* Merging highly skilled teams with complementary expertise: the Connect Group has a proven track record of successfully launching and commercialising innovative financial solutions and a demonstrated ability to successfully integrate with new operating groups.
* Better serving the underserved: Net1 and the Connect Group are united by their commitment to provide dignified financial services to people and businesses who are underserved by the financial system. Net1’s base of more than 1-million retail customers and the Connect Group’s base of over 44 000 MSME customers are underserved by traditional financial services.