EMMF leads investment into Crossfin
Crossfin, a leading player in the South African fintech industry, announced today it is being acquired by a consortium of investors (“Consortium”). The Transaction is considered a landmark deal in the fintech industry and will see Crossfin secure the required capital to pursue the next phase of its growth. The Transaction is one of the largest private equity-led investments in the fintech sector in South Africa to date and offers the consortium exposure to an industry that has and is expected to continue benefitting, among others, from the secular trends of digitalisation and proliferation of payments technologies.
The transaction will see the exit of the founding investors Capital Eye Investments and the Multiply Group, who have been anchor shareholders since 2017.
The Consortium is led by Ethos’ Mid-Market Fund I (“EMMF I”) and includes the founding Crossfin executive management team, EMMF I Co-Investors, Ethos Artificial Intelligence Fund I, and leading empowerment investor African Rainbow Capital (“Consortium”). Independent investment banking firm Fairview Partners acted as Financial Advisor on the Transaction.
Crossfin is a leading independent fintech platform operating predominantly in South Africa with a particular focus on payments technologies and smart funding. Crossfin is led by a highly experienced executive management team with decades of experience in the fintech industry and the broader technology sector.
The current management team co-founded the business and led it since inception. Crossfin operates a differentiated business model based on investing and supporting an ecosystem of synergetic and complementary fintech businesses at different stages of maturity, thus creating exposure to high growth opportunities while ensuring positive profitability and cash flows are consistently achieved.
The differentiated business model of Crossfin has allowed the platform to consistently achieve robust top line and earnings growth, and a top quartile Gross Internal Rate of Return to shareholders despite very limited access to capital to support growth. The performance of the business and its management team was achieved during a particularly challenging economic environment and despite the impact of the Covid-19 pandemic and associated lockdown measures implemented in South Africa in 2020 and 2021.
Crossfin currently has three main pillars:
1. Payment Technologies
The main Crossfin investment in this segment consists of Adumo, the leading independent omnichannel payment acquiring business in South Africa processing c.200 million payment transactions annually across c.50 thousand active merchants through its various payment platforms. Adumo is ideally positioned to leverage the continued trend towards digitalisation of payments and the proliferation of payment technologies as well as the accelerating growth in e-commerce activities across merchant segments.
Adumo aims to enable and increase the penetration of cashless payments acceptance, such as card and mobile payments, and offers e-commerce payment capabilities through Adumo Online to predominantly merchant segments that are underserved and underpenetrated by conventional financial institutions, as well as the informal sector of the economy. The company also enables merchants to sell VAS (“Value Added Services”).
Adumo also focuses on offering funding and financial products such as Merchant Cash Advances (“MCA”) in partnership with Retail Capital in order to address the well documented SMME and lower tier merchants funding gap and has recently launched the Buy-Now-Pay-Later (“BNPL”) product as an enablement and distribution partner to Tymebank.
Adumo is particularly strong in the Tier IV merchants’ segment and the informal economy through its subsidiary iKhokha, a market segment estimated to be in excess of 1 million merchants where cash payments still constitute the overwhelming majority of payment transactions, and where strong growth in non-cash payments is being experienced and is expected to accelerate over the foreseeable future. Adumo, through iKhokha, has been able to leverage its strong presence in this highly attractive and fast-growing market segment where conventional business models have not been able to reach or adequately service merchants, to achieve exciting growth in merchant numbers and transaction volumes.
The Payment Technologies segment also includes Crossgate Holdings (“Crossgate”). In addition to its core business of card issuing for retailers, banks, and non-bank financial institutions through Crossgate Technologies, Crossgate aims to leverage its proprietary and its partners technology platforms to allow enterprise clients and others to provide alliance banking and other financial services to further improve financial inclusion and the digitalisation of payments in the economy.
2. Smart Funding
Crossfin is also invested in Retail Capital, which uses transactional data to provide funding to the SMME market, a segment that is under-penetrated by conventional financial institutions and where a significant funding gap exists. The Retail Capital business model is anchored around its “Low Touch Merchant Cash Advance” product, leveraging its proprietary technology platform to analyse transactional payment data of merchants to determine repayment capabilities and to extend funding accordingly. Retail Capital partners with payment and e-commerce marketplace businesses to offer its funding solutions to merchants.
Retail Capital has exciting growth prospects and benefits from a number of factors including the strong growth in the businesses of its channel partners, the significant funding gap in the merchant segments its targets, and its ability to achieve strong scalability and operating leverage through its use of data and the digital lanes of its partners to support the funding extension, disbursement, and collection processes.
3. Venture Capital
Crossfin Ventures (“CV”) is the Venture Capital arm of the Crossfin Group. Despite being the smallest of the three current segments of Crossfin (estimated to be less than 5% of value), CV plays a critical role within the Crossfin Ecosystem by allowing the company to gain early-stage exposure to emerging trends in the fintech industry. As part of its ecosystem approach, Crossfin aims to invest in high potential for disruption businesses with strong growth prospects while continuously exploring synergies and complementarity within the broader group.
In addition to the three existing Segments, Crossfin is in the process of acquiring Sybrin, a low code and Artificial Intelligence (“Ai”) enabled enterprise software business targeting the financial sector with a focus on automation and the use of Ai and machine learning to achieve efficiencies for its clients.
The Transaction includes the acquisition of the current business as well as the provision of acquisition and growth capital to enable Crossfin to invest organically and pursue new opportunities across South Africa and the rest of Africa. The transaction brings together some of South Africa’s leading private equity investors, leaders in AI insights and skills, strong BEE credentials, and multiple potential touch points within the various portfolio companies of the consortium members to further accelerate the strong value creation momentum already experienced by the business.
Edward Pitsi, Managing Partner, Ethos Mid Market Fund I & Deal Lead: “We believe that this is an exciting opportunity underpinned by strong tailwinds in a cutting-edge industry. Crossfin is ideally positioned to continue capturing the payments technology and the broader fintech opportunity both existing and emerging. The transaction is an exceptional opportunity to acquire a group with significant value creation momentum. We are proud to partner with Dean, Anton and the broader Crossfin team, who have done a phenomenal job of growing the business and we look forward to partnering with them through the next phase of their growth.”
Roger Grobler, Partner, Ethos Artificial Intelligence Fund I: “Disruption and exponential growth come from using technology, data and algorithms to create new business models, particularly in financial services. Crossfin has a track record of doing exactly that, with significant future potential to be unlocked in the years to come”.
Charmaine Padayachy, Deal Executive, African Rainbow Capital said: “African Rainbow Capital is excited about its investment into Crossfin which represents a further deepening of its own fintech ambitions, which is to establish an ecosystem of relevant fintech type business. Crossfin has a capable management team in place that we are confident will continue to add significant value to what is already an impressive track record underpinned by quality and high-growth businesses. We are confident that Crossfin will play a key role in reshaping the financial services landscape and continue to innovate and pioneer as it has done in the past.”
Dean Sparrow, CEO & Anton Gaylard, CXO at Crossfin: “The transaction represents a new phase of growth and maturation for Crossfin. With additional growth capital invested in the business, we are advancing our vision of building and investing in great fintech businesses growing a compelling and mutually beneficial fintech ecosystem to enable growth and efficiencies for economies in Africa and beyond. As management we see significant growth underpinned by secular tailwinds in the payments, smart funding and broader fintech industry, which has seen us effectively re-invest 100% of the proceeds from the sale of our stake back into the business. We are thankful to our founding shareholders, Capital Eye Investments, the Multiply Group and Andisa Partners, who supported us from inception to date and enabled us to build this attractive platform. We also recognise the tireless effort and commitment from the founders and executive management teams of the businesses within our ecosystem. We are excited at the prospects of working with our new partners to accelerate growth and value creation. Our new partners, who bring additional capital and insights to our business, share our passion for entrepreneurship and the fintech industry, and we are confident that with their financial and non-financial support we will be able to further accelerate the growth of the business and help cement Crossfin’s position as a leading fintech platform”
Marouan Selmi, Managing Director at Fairview Partners said: “The buyout of Crossfin represents an attractive investment opportunity for a diverse range of investors led by EMMF I. Fairview is proud to have supported this complex & dynamic transaction, creating a win-win situation for both exiting shareholders and the new investors in the platform”