Why Nigeria’s digital payment pioneer Interswitch abandoned IPO for TA Associates investment

Why Nigeria’s digital payment pioneer Interswitch abandoned IPO for TA Associates investment

TA Associates, a leading global growth private equity firm, has announced it has acquired a minority equity interest in Interswitch, an Africa-focused integrated digital payments and commerce company. Financial terms of the transaction were not disclosed. Helios Investment Partners will remain the majority shareholder of Interswitch.

Founded in 2002, Interswitch is active across the entire payments value chain. A recognized leader in the payments space in Nigeria, the company owns and operates the country’s principal domestic debit card scheme, Verve, as well as serves as a third-party transaction processor for many of Nigeria’s largest banks. In addition, the company offers a number of B2B electronic payment services to public and private sector organizations and businesses, including government entities, hospitals, telecommunications companies and utilities, and also operates Quickteller, the leading B2C bill payments and digital commerce platform in Nigeria. Through add-on acquisitions, Interswitch also operates in Kenya and Uganda.

The digital payments evolution is in the early stages of development in Nigeria, with cash used for 99% of transactions according to McKinsey & Company, versus approximately 50% for developed markets in North America and Europe. Despite the young market, the size of the Nigerian payments opportunity is underpinned by its continent-leading population and sizeable economy. Based on estimates from McKinsey & Company, Interswitch occupies a leading position in the emerging marketplace, especially in debit cards, which comprise 99% of all cards in Nigeria.

Interswitch joins TA Associates’ other current and past payment processing investments worldwide, including BluePay Processing, Cardtronics, IndiaIdeas.com (BillDesk), Procare Software, Retriever Medical/Dental Payments, W.A.G. payment solutions (Eurowag) and YeePay.

It is interesting as in the past Interswitch had sought listing in London Stock Exchange. Apparently, this cash injection will help it scale and then prepare for IPO since it is not likely a buyout is coming soon. Helios needs an exit on this investment as it has to return money back to its backers. Bloomberg noted few months ago that it had hired investment banks looking for $1B sale but none materialized.

The company, which operates in five African countries, said last year it met with banks including Bank of America Corp., Barclays Plc and Standard Bank Group Ltd. about a potential 2016 share sale in Lagos and London. The IPO would have enabled London-based private equity group Helios Investment Partners LLP, a shareholder, to return some money to investors, Interswitch Chief Executive Officer Mitchell Elegbe said in a Dec. 16 interview.

The big deal will be total buyout of Interswitch or IPO. But with Nigeria’s deteriorating economy, IPO may not be a smart move. Cash injection, if done in Naira, will be cheap for foreign investors at this time while Interswitch continues to look for a future where it can prepare for IPO or possibly a total buyout. As also noted by Bloomberg, Interswitch is pivoting owing to the economic circumstances in Nigeria.

“The macroeconomic situation in Nigeria is the determining factor’’ in delaying the plans, Elegbe, 45, said at the company’s offices in Lagos, the commercial hub. Potential investors are “jittery’’ about the naira exchange rate and whether they will be able to buy foreign-exchange to get their money out of the West African country, he said.

But nevertheless, Tekedia congratulates them for raising money in this turbulent economy we have in Nigeria now.

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