Mastercard to purchase a minority stake in MTN’s $5.2B fintech business | TechCrunch

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Mastercard has agreed to purchase a minority stake in the fintech division of MTN Group, Africa’s largest cell phone provider, which it values at $5.2 billion. The signing of the formal investment agreements will likely occur very soon as both parties near the end of the regular due diligence process; the investment will be closed subject to usual closing conditions, MTN announced in a statement on the company’s half-year financial performance posted on Monday.

According to MTN Group president and CEO Ralph Mupita, the deal will be structured as a commercial partnership on payments and remittances employing Mastercard’s technical infrastructure to develop throughout Africa and an investment in a minority share. He stated that the share size would be announced after completing the transaction, per Bloomberg.

“We delivered a resilient performance in H1 23 and made good strategic progress against a tough macro backdrop. In South Africa, we were very encouraged by the improved network availability on the back of our power-resilience investment, resulting in a stronger Q2 23 performance than Q1 23,” Mupita said in the statement. “In Nigeria, we delivered a very strong operational result, having navigated the cash shortages in Q1 23 and increased inflation. The policy changes implemented in Nigeria in Q2 ’23 have short-term negative impacts, but we see these as being very constructive for the investment climate in the medium to longer term.”

This news comes a year after MTN Group said it was searching for minority investors to invest in its African fintech subsidiary after separating it from the carrier’s main telecom business to maximize development in the thriving division. The Johannesburg-based company’s aspirations were boosted after obtaining a mobile banking license in Nigeria, its largest market, which allowed MTN to offer financial services to millions of new clients.

For the first half of this year, the transactions recorded by MTN’s mobile money business increased by 37% to $8.3 billion; over 60 million active users executed them. At the end of June 2023, the MTN Group had over 290 million subscribers.

Meanwhile, in 2021, Mastercard inked a deal with Airtel Africa, one of MTN’s competitors, which saw the India-founded telecom receive $100 million for its mobile money business, Airtel Mobile Commerce BV, at a $2.65 billion valuation. According to Bloomberg, Mastercard’s planned minority investment in MTN mobile money, at a valuation of $5.2 billion, translates to 16x trailing EBITDA – far more than Airtel Africa’s corresponding 10x. The cash might aid MTN’s balance sheet by temporarily substituting for dividends from subsidiaries and somewhat offsetting increased 2023 capital-spending projections — both of which are influenced by forex.

It’s not just Airtel and MTN that have lofty fintech ambitions. Safaricom, via M-Pesa, has dominated the Kenyan mobile money business for years. The telecom operator, alongside South Africa’s Vodacom, is also keen on separating its fintech arm from the traditional telecom business. There’s an incentive to push fintech activities for these telecommunications carriers in Africa because the continent is gradually shifting from primary voice and text mobile to digital services. The financial services these telecom operators offer will see them compete with already established companies in Africa’s fintech space, including Interswitch, Flutterwave, Chipper Cash and MFS Africa.