Renaissance Capital Highlights Value in Stripe, Paystack Deal

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By Obinna Chima

Analysts at Renaissance Capital (RenCap) have estimated the perceived value realised by Nigeria’s start-up, Paystack in the recent announcement of its acquisition by Stripe, an American financial services and software company.

The deal was put at over $200 million.

RenCap estimated in a report on the transaction obtained yesterday that the deal valued Paystack at about 14 times of the fintech’s annualised gross revenue in 2020 and 40 times its net revenue.

The financial advisory firm stated that in Nigeria, the merchant service charge (MSC) is capped at 1.5 per cent, which is shared along the payments value chain.

“Paystack’s niche is in online payments, processing over half of Nigeria’s online transactions. It’s used by 60,000 businesses in Ghana and Nigeria for online and offline payments and has launched a pilot in South Africa.”

In reviewing the implications for Ecobank Transnational Incorporated (ETI) and Guaranty Trust Bank (GTB) payment valuations, it stated: “We have included the 14 times implied gross revenue multiple in our Africa fintech valuation sheet and updated our pro-forma valuation for ETI and GTB’s payments businesses.

“We look at valuations for Interswitch/Visa, Network/Abraaj, DPO/Network, Paystack/Stripe, MPesa, Network and Fawry, and calculate average revenue multiples of 13 times. Applying these to ETI’s first half of 2020 annualised revenues, assuming five per cent and 10 per cent payments revenue contributions (that is $73 million and $154 million), we estimate that its payments business could be worth between $950mn to $2bn, i.e. 3.4-7x larger than ETI’s current market capitalisation of $282 million,” it stated.

Applying same multiple to GTBank’s full year 2019 digital income ($51 million), this implied a valuation range of between $666 million- $1 billion, which was 29 to 44 per cent of its current market capitalisation, with a mid-point of $845 million. This represented 36 per cent of GTBank’s current market capitalisation.

“From our discussions with management, we believe that its own estimated valuation of this business is at least double our base-case estimate. In practice, for both banks, we would still need to adjust the revenue number as not all of what’s currently reported/assumed will transition if a full carve out is done,” the report added.

The deal came few months after Stripe announced it had secured another $600 million in funding.

The US-based company had explained that the African internet economy was expanding quickly, with online commerce in the region growing at 21 per cent year-over-year, which was said to be 75 per cent faster than the global average.

Therefore, in order to help increase Africa’s online Gross Domestic Product (GDP), Stripe said it decided to enter into an agreement to acquire Paystack, the Lagos-based technology company that makes it easy for organisations of all sizes to collect payments from around the world.

“Today, more than 60,000 businesses in Nigeria and Ghana use Paystack to securely collect online and offline payments, launch new business models, and deepen customer relationships. Incredibly, Paystack already processes more than half of all online transactions in Nigeria. Paystack has ambitious plans to expand across the continent and recently started a pilot with businesses in South Africa.

“Stripe and Paystack have been working closely together for some time. In 2018, Stripe led Paystack’s Series A financing round and has provided ongoing guidance as the company rapidly scaled,” Stripe had explained.

Stripe’s co-founder and CEO, Patrick Collison, said: “In absolute numbers, Africa may be smaller right now than other regions, but online commerce will grow about 30 per cent every year. And even with wider global declines, online shoppers are growing twice as fast. Stripe thinks on a longer time horizon than others because we are an infrastructure company. We are thinking of what the world will look like in 2040-2050.”