Second-Time Unlucky: Interswitch Forced To Further Delay IPO Until 2021

Africa’s first fintech unicorn is second-time unlucky

For the second time in as many attempts, the planned Initial Public Offering (IPO) of Nigerian fintech giant, Interswitch, has hit the rocks.

It was three years ago when Interswitch first hinted at going public on a major exchange and thereby triggering possible exits for backers Helios Investment Partners, TA Investments, Adlevo Capital, and others.

That listing didn’t happen for reasons which were later found to be connected to the economic recession in Nigeria caused by the plunge in oil prices at the time.

Last July, talk of an Interswitch IPO was reignited when word got out that the company had hired advisers to resurrect plans for a stock-market listing in London and Lagos in late 2019.

JPMorgan Chase & Co., Citigroup Inc., and Standard Bank Group Ltd. are among the firms that were reported to be working on a tentative November IPO, which was expected to value Interswitch at between USD 1.3 Bn to USD 1.5 Bn.

However, what happened in November 2019 was not a listing but a confirmation of its unicorn status after global payments company, Visa, acquired a minority equity stake in Interswitch.

Although Interswitch wouldn’t confirm the financial details of the deal, it was widely reported that Visa had doled out USD 200 Mn for a 20 percent stake

With Visa taking a strategic position in Interswitch, which itself had just achieved a ten-figure valuation, sources familiar with the situation had ruled that all the cogs were finally in place and that the IPO would happen in the first half of 2020.

But Interswitch would be hoping the third time’s really the charm as market uncertainties triggered by the COVID-19 pandemic has all but thwarted the company’s second attempt at going public.

According to a source, Interswitch’s listing on the LSE is being put on hold “until the middle of next year at least.” 

As equity prices in global stock markets continue to suffer amid the coronavirus pandemic and plummeting oil prices which has investors showing little interest, the fintech company is, once again, delaying its float in London. And it might be “more than a little while” before the much-awaited IPO finally happens.

Representatives of Interswitch declined to comment on the indefinitely-postponed IPO. The Nigerian fintech firm, which has always been somewhat coy about its IPO plans, also declined to comment on the new timeline.

Where to from here?

In 2016, Interswitch was gearing up for what was thought to be an imminent historic dual-listing on both the London Stock Exchange (LSE) and the Lagos bourse. 

“A dual-listing on the London and Lagos stock exchange is an option on the table. But It’s not the only one to facilitate potential exits by the company’s private equity investors. We are also looking at a possible trade sale,” Interswitch CEO and founder, Mitchell Elegbe, had explained at the time.

But the IPO plans never quite materialized. The listing that would have made Interswitch the first African tech company to go from venture capital-backed startup to tech unicorn listed on a global exchange was called off.

As Elegbe later revealed, the IPO was put off because of the unfavourable economic situation in Nigeria which fuelled concerns over a potential weakness in the naira and a shortage of foreign currency.

“The macroeconomic situation in Nigeria is the determining factor’’ in delaying the plans, the 48-year-old had said during an interview at the company’s offices in Lagos. 

“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 had added.

And unfortunately, it does look like history is repeating itself once again, only that this time, there’s more to the setback than Nigeria’s economic struggles. Between the COVID-19 pandemic wreaking across the globe and the apparent malaise suffered by European markets over several months, Interswitch faces a much bigger challenge.

Making Interswitch’s London IPO case

Founded in 2002, Interswitch is one of the earliest tech companies in Nigeria. The Lagos-based fintech firm — largely-owned by private equity group, Helios Investment Partners — provides much of Nigeria’s digital finance infrastructure.

Interswitch’s product platforms process the bulk of the country’s growing volume in electronic bank, government, and corporate financial transactions. 

The company built Nigeria’s first interbank transaction switching and payment processing infrastructure. This enabled interbank sharing and the first real-time POS system.

Interswitch uses its ‘switching’ infrastructure to connect the different banks in Nigeria and provides technology for ATM cards. The company boasts over 11,000 ATMs on its network.

The year 2008, in particular, is a landmark year for Interswitch. That was the year the company launched Verve, which has become the most used payment card in Nigeria. Verve has also been launched in Kenya and has since gone global.

In 2009, Interswitch introduced Quickteller; an online payments platform that can be accessed through a wide array of digital and physical channels. Quickteller currently boasts up to 15 million users.

As of 2016, the company said 32 million consumers make use of its Verve chip and PIN cards, while Quickteller processed over 42 million transactions monthly as of 31 July, 2019 — the equivalent of more than USD 1.82 Bn.

Interswitch has grown to over NGN 30.8 Bn (USD 85.16 Mn) revenue, as of March 2015 year-end, with 93 percent recurring revenue. Last year, Moody’s said Interswitch posted average net revenue growth of 17 percent from 2017-2019 and an average EBITDA margin of 40 percent over the same period.

Today, Nigerian consumers and businesses make more than 300 million digital transactions every month via a suite of channels enabled by Interswitch.

Beyond the shores of Nigeria, Interswitch has a physical presence in Uganda, Gambia, and Kenya where it has completed several high-profile acquisitions. The company also sells its products in at least 23 African countries, through bank partnerships, currently.

For a company of its size and promise, a cash-splashing IPO on a major stock exchange seems like the next big growth step. It would also enable its biggest backers, Helios, to return some money to investors, just as Elegbe had mentioned in a December 2016 interview.

Taking a wider perspective, an Interswitch IPO on the London and Lagos stock exchanges could offer global investors another “hopefully better” example with which to gauge Africa’s tech sector after Jumia’s post-IPO troubles of the previous year. 

While Jumia may have ultimately beaten Interswitch to the title of “Africa’s first tech company to list on a major exchange” after last April’s listing on the New York Stock Exchange (NYSE), things seem to have gone south for the e-commerce giant. And Interswitch will be hoping to do better when it finally goes public.

But there’s another problem: Europe’s markets are in decline

Interswitch has its sights set on launching an offer on the prestigious London bourse, but the IPO business has generally slowed down in European markets for some time now.

Even before COVID-19 tanked stocks and torched economies, IPO bankers had already had a tough few months. Last year, the number of listings dropped to the lowest in a decade, and although 2020 was tipped to offer better outcomes, any hopes of a rebound in activity have quickly evaporated.

In Q1 2020, 17 companies listed in Europe, raising USD 1.5 Bn. According to Bloomberg, it was an 80 percent drop in proceeds versus successful deals announced in the same period last year. 

Furthermore, the number of listings recorded in Q1 2020 was the lowest since the third quarter of 2009 with the volume of canceled deals threatening to soon outstrip the successful ones: About USD 1.1 Bn of announced listings failed to go through in the quarter.

With the dramatic swing in equities and the spike in market volatility recorded over the last few weeks, listing in the first half of the year may be next to impossible now and bankers say the market is likely to remain cold for months.

The current uncertainties mean that companies can’t execute their plans, especially as an IPO is a lengthy process, taking at least four weeks from announcement to the start of trading. It takes even more time when early-look investor meetings and other preparations are factored in.

And now deal logistics have become a lot more complicated because of the pandemic. Bankers have been forced to resort to video conferences to pitch potential share sales, further stifling the process.

Interswitch, like many other companies that have been affected by the pandemic, is unlikely to be able to list until 2021. This is because investors will want to gauge any shifts in consumer preferences post-COVID-19 and any examination of quarterly results is unlikely to offer the right guidance at this time.