East Meets West: An African Strategic Acquisition Story

Gain insights from a successful fintech acquisition in Africa.

June 15, 2021

Meet Adam Abate and Tayo Oviosu, from Paga, and Victor Basta, CEO of DAI Magister, and hear about the hurdles and high points of an east-meets-west African fintech acquisition.

Abate’s entrepreneurial journey began when he and two fellow Ethiopians started Apposit, a consulting firm building technology that would work in African contexts — low bandwidth, low human capital, and affordable. Turns out that was exactly what Oviosu needed to create Paga, now the leading payments platform in Nigeria. What started as a simple consulting agreement turned into a long-term strategic relationship and ultimately paved the way for Paga’s acquisition of Apposit in 2020.

Basta says while this isn’t the norm for acquisitions, it’s a wise strategy to develop relationships with the people you might acquire or be acquired by. Basta helps fast-growing, tech-enabled businesses like Paga do everything from raising capital to acquisitions. He says one of the keys to getting bought, not sold, is “developing relationships with companies that are likely buyers years ahead of when they actually might buy. You can always go search for companies, but people buy people they know or people they’ve heard of, and there’s a degree of comfort and confidence with that.”

The two entrepreneurs learned a lot in the process about the importance of trust, talent, and having a shared vision that will make both sides of the acquisition feel right about the decision.

According to Abate, “A lot of it came down to gut and how you really felt about it inside. Did all the pieces fit together? Did you wake up every day thinking, yes, this is the right decision despite the difficulties in negotiation? Even now, almost two years down the line with all the little problems we faced along the way, I often asked myself, ‘Was it the right decision?’ and overwhelmingly it comes back to yes because the fundamental principles of why we got into discussion in the first place are still there. They haven’t changed.”

Listen to Abate and Oviosu’s story and Basta’s insights to learn how to set your own business up for buying or selling to the right partner.

Grit & Growth is a podcast produced by Stanford Seed, an institute at Stanford Graduate School of Business which partners with entrepreneurs in emerging markets to build thriving enterprises that transform lives.

Hear these entrepreneurs’ stories of trial and triumph, and gain insights and guidance from Stanford University faculty and global business experts on how to transform today’s challenges into tomorrow’s opportunities.

Full Transcript

Adam Abate: We said, “There’s a demand for these types of skills in Africa.” And at the time, we called it appropriate technology built for Africa in the African context.

Darius Teter: Adam Abate and his partners had spent a decade building their company Apposit from the ground up. But in 2018, their goals began to shift.

Adam Abate: We actually intentionally made this a strategy to partner with inspiring entrepreneurs that we believed in. And by complimenting them with our technical abilities, we would be able to reach big places together.

Darius Teter: When a business wants to expand their market share, a merger or an acquisition can be a productive route to take. But where do you find the right partners? How can you be sure that you’re aligned on direction and vision? And what does it take to bring the deal over the finish line? I’m Darius Teter, and this is Grit and Growth with Stanford Seed, the show where Africa and India’s intrepid entrepreneurs share their trials and triumphs with insights from Stanford faculty and global experts on how to tackle challenges and grow your business. Today, we meet Ethiopian CEO Adam Abate and Group CEO Tayo Oviosu from Paga. We hear about their journey to unite their companies, not just in terms of a shared vision, but with an acquisition that was greater than the sum of its parts.

Over the past decade, there has been an undeniable increase in the number of tech-enabled businesses in Africa. As digital infrastructure and reach approves, young dynamic entrepreneurs are rushing to exploit new market opportunities across the continent. Generally, when it comes to growth, acquisitions might be a common strategy in other markets. But in Africa, it is far from the norm. Today’s first guest, Adam Abate, is now the CEO of Paga, Ethiopia. But his entrepreneurial journey began with the founding of his first company, Apposit.

Adam Abate: My name is Adam Abate. I’m currently the CEO for Paga, Ethiopia. I was born and raised here in Ethiopia and I left when I was 15, went to the United Kingdom to finish high school in a boarding school there, and then I headed over to the U.S. I went to Brown University. Following which, I spent about five years working in the East Coast in a consulting capacity initially and then more in a technical role, developing software for financial institutions in New York City. I moved back to Ethiopia in 2003 because I wanted to start my own business, and I felt like there were many more opportunities in Ethiopia since there is so little here.

Darius Teter: Tell us a little bit about Apposit. How did it start, how did you meet your fellow founders, and what was your goal when you started it?

Adam Abate: When I moved back to Ethiopia, I ended up deciding to start an alternative energy business. And I’d made multiple trips back. And on the last trip back, a friend of a friend put me in touch with a project at the Ministry of Finance. It was actually being implemented by Harvard University. And they were looking for a consultant to help them assess some technology they’d built. So I said, “Yeah, sure. Why not?” And that was a four-month gig, which ended up turning into four years. So what we were doing was building financial management systems for the government of Ethiopia. Initially, we had outsourced it, and eventually, we had made a decision to build it ourselves. And so at that point, I reached out to one of my closest friends, Eric. I went to college with him. I worked with him in New York, and he was the best and closest person I knew that I could trust to come and design and run the technology for me. And then along the way, I also came across a very old friend and distant relative, Simon, who had moved back to Ethiopia. I roped him into joining our team.

Darius Teter: While working together on the project, Adam, Eric and Simon discovered that they were a pretty good team. And they were all inspired by the fact they were an Ethiopian team, building technology for the Ethiopian government.

Adam Abate: As that project wound down, the three of us, who would work together for four years, we said, “There’s a demand for these types of skills in Africa.” And at the time we called it appropriate technology built for Africa in the African context. We decided to start a company together. The three of us were very complimentary in skills. There was a lot of trust. There were strong friendships. And we had nothing, no other plan. So we started the company Apposit.

Darius Teter: What problem is Apposit solving? What’s your primary product for your customer?

Adam Abate: So initially we were a consulting firm, basically building technology that would work in African contexts, low bandwidth, low human capital, and affordable. Over the years, that changed. Increasingly, we became a product company. And very early on, Eric, my partner, and Tayo connected and started the relationship that we’re still in today.

Darius Teter: Tayo Oviosu is the CEO of Paga, the company that would eventually acquire Apposit. Today, Paga is a leading payments platform in Nigeria with 700% quarter on quarter customer growth in 2020 and over 17 million users. But like a lot of founders, Tayo’s path was anything but straight. And he’s on the line with us today.

Tayo Oviosu: So Tayo Oviosu, I’m the founder and group CEO of Paga. I’m coming to you from Lagos, Nigeria, where I’m based. Born and raised here, but I went to school in the U.S., spent about 14 years, so undergrad at USC in LA and then business school at Stanford Business School. After business school, I went to Cisco to go do venture capital, so helping Cisco invest in businesses and acquiring businesses for Cisco. That was my background before I decided to move back to Nigeria to be part of the economic redevelopment of Nigeria. I joined a private equity firm in Nigeria when I came back. I did not enjoy that. And so six months later, I decided to leave without any idea what I was going to do. And this was at the height of the financial crisis in 2009. Okay? So everybody thought I was crazy, leaving a well paid job with no other reason other than I didn’t enjoy it. Yeah, so I spent about three months looking at different ideas before honing in on what is now Paga.

Darius Teter: Tayo was in Nigeria formulating his ideas while Adam, Eric, and Simon were busy getting Apposit off the ground in Ethiopia. But it wouldn’t be long before their paths crossed.

Tayo Oviosu: Eric’s younger brother is one of my best friends from business school. So I had heard of Eric and what they were doing. And when I moved back to Nigeria, I think late in the fall of that year of 2009, I had a wedding in Ethiopia. And so Eric offered to host me, actually, offered me his house, and he was traveling the same day I was arriving. So I literally met him, said, “Hi,” and he had to head to the airport. So I didn’t really get to meet him on that trip properly, but he came to Nigeria a few months later. I hosted him at my place, and we got talking. Actually, that first evening when he was there, I was sharing with him that I was looking at different ideas, trying to figure out what I’m going to do.

And one of the ideas I had in mind was to build a cloud payroll product, similar to what I had seen in the U.S. with ADP. And he was like, “No kidding. We literally have designed one, and we’re about to start building it.” And he whips out his laptop and starts showing me this thing. And I’m like, “Dude. We’re just having a drink and talking.” So he showed me that, and I said, “Okay, wow. Maybe you guys could build, and I would be a partner in Nigeria.” So we talked about that for a while. I got going on my research around it and ended up deciding not to do that business at the time.

Darius Teter: The payroll product didn’t work out, but a new relationship had begun. Tayo set his sights on launching a digital payments app named Paga, Nigeria’s answer to Venmo or Cash App. Tayo started building his payments product, outsourcing the technology development to a partner in India. But the user interface he was seeing wasn’t quite what he had in mind.

Tayo Oviosu: I decided to call up Eric and say, “Could you guys build me the user interface and the front end, and we use their back end?” And he said, “Yeah, we probably could do that. We could also help you translate your business requirements to technical requirements for them.” So we started a consulting project together, and we did that for a couple months, which culminated in Eric and myself going to India and meeting with this company, sharing the requirements, taking their questions. And every single night at dinner, Eric said, “Tayo, we can build this better.”

Darius Teter: Both Tayo from Paga and Adam from Apposit have similar stories. They started out believing that they needed foreign partners but ended up developing their projects on the continent. There are certainly some upsides to pursuing that path. And to understand more, I called up Victor Basta.

Victor Basta: I’m Victor Basta. I’m the CEO of DAI Magister, and we’re at the moment probably the most active advisory firm handling larger rounds and M&A deals for companies in Africa and the Middle East.

Darius Teter: Victor helps fast growing tech-enabled businesses navigate everything from raising capital to acquisitions, and he knows the nuances of scaling a company in Africa better than most.

Victor Basta: In Europe or the U.S., you can rent infrastructure. You can literally get into business tomorrow and deploy your product. In Africa, if you’re going to move food from smallholder farmers to roadside stallholders, you need to have your own trucks, you need to have your own warehouses, you need to have your own tech stack, and you have control of the end-to-end stack, the end-to-end delivery in the supply chain. That costs a significant amount of money even in a place like Africa and requires a level of competence that you don’t need to develop in Europe, or the U.S.

Darius Teter: Does that create an incentive for international companies to try to expand their footprint through acquisition so that they can find someone who understands how to navigate all of that complexity problem and thereby get access to 200 million people?

Victor Basta: Exactly. And that’s the thesis for getting eventual exits, is that there’s going to be a small number of companies that are now growing quickly, that will graduate to a point where they cover enough of the continent. So they understand how to be an African platform business, that’s number one. Two, they’ve solved these kinds of problems and keep them under the hood, if you will, and then how to operate within different regulatory regimes.

Darius Teter: One of the benefits of investing in or acquiring an African company is you get a better understanding of both their operating environment and their markets. And it’s the second point, knowing the market from the inside, that deeply informed the way Tayo built Paga.

Victor Basta: There are a lot of local nuances, right? So at the surface, Paga looks like Square, right? It looks like a Cash App. It looks like Venmo. But you know what? When I showed Paga to Jack Dorsey, he was surprised at us being able to pay bills within the app, something that is so basic to everybody here, right?

Darius Teter: You’ll laugh. We are still sending checks to people, if you can believe that, here in Silicon Valley.

Victor Basta: Exactly, right? Yeah, so he was like, “Wow, that’s pretty cool. I can do my bills right here.” That was what I didn’t catch at the very beginning, right, all these local nuances of decisions. And at the time, it seemed like the biggest decision we would ever make. We came back from that trip, and I immediately went to my investors and my co-founders. And I said, “Eric thinks we need to build this thing ourselves, and they can do it for us.” And it felt so risky to make this decision. He went back to Adam and to Simon and said, “I think we should build Paga, and it should be a focus for us.”

So they talked about whether they wanted to do it. We went and talked about whether we wanted them to do it. And then we had a meeting, and I said, “Look, if you’re going to do this for us, then we need to own the IP, and you need to be dedicated to it, right, because we can’t have a situation where the people building it, at some point, just leave.” So we actually entered a very interesting relationship where they invested in our seed round, and he said, “This is showing our own commitment.” And then we also entered a relationship where we paid a fee, right, for their time but also paid them in shares that they could invest. And so we started this relationship that way.

Darius Teter: So Adam, you guys put some capital into their seed round. Can I ask how much, and what were the terms?

Adam Abate: The initial investment, I think, was about $50,000. That was just our contribution in the first seed round. And that was just a purchase. It was separate from the shares invested over time.

Darius Teter: So what share of the company did you secure with that seed contribution?

Adam Abate: It wasn’t a big share, but the whole purpose of this was really to create alignment between us. And it transformed the relationship. It went from a client-supplier relationship, where we’re looking at the clock, and we were trying to handle change requests.

Darius Teter: Billable hours.

Adam Abate: Yeah, and that’s not really how we were working and in particular how Eric was working. We wanted it to be all in and we wanted the structure to reflect that. So I think that was a real turning point for us. That was very early on in our relationship.

Darius Teter: At the time, Apposit had several products with a common theme, applying technology to different verticals.

Adam Abate: We ran basically three business lines. There was the Paga business line, and then there was a digital agriculture platform, which we called Terra. We are trying to apply technology at different stages of the value chain. And then the other major focus was a sales force automation platform for fast-moving consumer goods, manufacturers, and distributors, which we called Tangio. We did have other projects, but what we did was basically dedicate Eric and a team of people to Paga. So Eric has effectively been acting as the CTO for Paga since the relationship began, whereas Simon and myself, and we later brought on another partner, Gideon, we dealt with all the other business, which was primarily in Ethiopia. This was definitely a major part of our business, but it wasn’t all of our business.

Darius Teter: What were the initial commercial benefits of this partnership with Paga? And specifically, and I think adding to that, what sort of future opportunities did you already imagine for this partnership?

Adam Abate: I think Tayo always inspired us with his vision. He came with a very different background from venture capital, raising money to start a business and also just big thinking. So we often had our heads, not in the weeds, but definitely down in the details, trying to optimize technical things and build the best products we could. So we felt from the beginning, and we actually intentionally made this a strategy, although it never worked out again, to partner with inspiring entrepreneurs that we believed in. And by complimenting them with our technical abilities, we would be able to reach big places together. So Tayo was serendipitously our first customer. We tried to replicate that a few times and never worked out. But I think that was really what attracted us.

Tayo Oviosu: I think there were several moments where we’re like, “Oh, it’d be great for us to be one company.” And I was like, “Oh, I can’t afford that.” I can’t even think about that. And then, I think it was in… I don’t know, it was in 2018, we were in Ethiopia, and we just had a week of thinking about the future for Paga. And what came out of that for me was really powerful, first of all, because we came back with a joint purpose around making it simple for a billion people to access and use money and saying that fundamentally, we don’t care if the money sits with us or sits at the bank, we really just want to help people efficiently transact and access their money.

And I think around the same time, my understanding, at least, Adam, was that you all had been thinking about, how do we focus on one thing? And so the conversation was, maybe this is the time for us to be one company. The other thing that clicked for me as well, Adam, was I remember you driving me somewhere, and I asked you the question. And it’s a question I’ve actually asked Adam many times whenever I go to Ethiopia. “How optimistic are you? How do you feel about the country?” And he was optimistic about him staying in the country, optimistic about the future of the country. And I was like, oh, wow, there’s something here.

Darius Teter: Ethiopia is… I mean, obviously, the population is not as big as Nigeria, but it is a big market.

Tayo Oviosu: Oh, it’s a big market, a hundred million plus people. Financial services still has a long way to go in Ethiopia, right? And I think what we’ve built in Nigeria, the understanding, the product, the capability, can help solve that. So that was one moment where we all started dreaming together and said, “Okay, where do we go with this thing?” Right? “How do we go bigger?” And we said, “Let’s do it,” right? We’ve been working together for eight years by that point. But when we talked to investors, they still were like, “Oh, your technology is outsourced.” Right? I’m like, “Well, not really. It’s not outsourced.” But it was still just that hurdle in people’s minds. So we’re like, “Okay, you know what? That immediately gets rid of that. Let’s go after the problems together and build a brighter future together.”

Darius Teter: I heard two big opportunities. One is, you could represent to your customers in Nigeria and to investors, probably most importantly, that this technology was your technology. It was all one company. The second opportunity was to actually build the Ethiopia market, build a product in the market there. Anything else, Adam, that you saw as the sort of benefit of a merger?

Adam Abate: Yeah, I mean, the word dreaming, interesting you used that. I remember waking up at 4:00 a.m. because this thought had gone in my mind, and I just couldn’t shake it. And I think I got up at 4:00 a.m., and I happened to text Tayo. And he too was awake, I don’t know if he was thinking about the same thing or not, but that is definitely dream time. We had decided over the years that increasing focus is the best strategy for us. Eric was on Paga, I was on something else, Simon was on something else. And we kept thinking, if all of us were on the same thing, we could really do some magic.

Darius Teter: Adam and Tayo had already spent many years working together before they imagined joining forces, which isn’t the norm for acquisitions. However, as Victor explains, companies that plan to scale and potentially merge should write it into their strategy early on.

Victor Basta: The dirty little secret is that being bought, not sold, takes an awful lot of selling beforehand. It’s just not called selling. So what does it mean? It means visibility in all of the different stripes. So one of the things that tech-enabled businesses don’t do is spend very much on, what I would call, corporate marketing. So you’re expecting somebody to do all the work to work out that you’re actually a reasonably sized business that I should be thinking about buying when my strategic requirements dictate. Of course, you can always go do a search for companies, but people buy people they know or people they’ve heard of. And there’s a degree of comfort and confidence with that.

The second, which is deeper and more relevant, is building those kinds of strategic relationships, commercial awareness, etc., again, developing relationships with companies that are likely buyers years ahead of when they actually might buy.

Darius Teter: Although Apposit and Paga had a strong working relationship, acquisition requires a lot of frank conversation. Adam says that although they were dreaming the same dreams, putting the sale together wasn’t easy.

Adam Abate: I think the deal has certain constraints. Frankly, I think I learned early on that it’s give and take. You’re not going to get everything you want. So you’re not walking out of the deal room with a smile from ear-to-ear or no bruises and cuts along the way. There was emotion, and there’s definitely… We’re giving up our independence. We’re becoming employees of another company. Is it the right thing to do? Do we have to do it? A lot of doubts, and it took about two years from when we first kind of seriously raised the idea to when we closed the deal. And so there’s a lot of ups and downs at times when you think, okay, I’m walking away from this, and times when you’re like, okay, great, this is going the way I want it so far. So generally, there are a lot of emotions, especially for first timers like us.

Darius Teter: Yeah, that’s fascinating. I’m curious. So you didn’t expect it to take two years, I’m assuming. Tayo, how did you experience this to your process?

Tayo Oviosu: I think my senior leadership team was convinced. There was just no question. And so for me, the first step was to convince my board. Actually, I’ll put it in three parts, convincing the board, getting the deal agreed, and then getting the regulatory approvals. The first two for me were traditional, what I would normally expect of doing a deal and the negotiation. All that’s normal. The place where I thought really shows where Ethiopia and Africa, broadly speaking, is when it comes to government and regulations was getting the deal approved. This is a deal that if I did this deal in the U.S., it would take two weeks, max four weeks, to get all the regulatory sign-offs, and the deal will be closed in four weeks. I think we signed the deal in July 2019. It took us all the way until December, and we did not waste any time. I mean, we had to go to the Ethiopian consulate in the U.S. to get some documents done. We had to go to the U.S. Embassy in Ethiopia to get some things done, and we had to get it translated, and we had to go to some other department. I mean, it was so many steps to get it approved.

Darius Teter: A major driving force behind this acquisition was a shared goal, Paga’s transformative purpose to reach a billion people. Of course, that meant exploring markets outside of Nigeria. Eventually, Paga’s structure would shift. Adam would become CEO of the Ethiopian operations with his partners from Apposit working in technologies at the group level. But how did they get there? I decided to dig in more about the human capital side of the equation.

Adam Abate: I don’t know what it was like on the Paga side, but I felt like we all fit into the roles that we eventually ended up assuming very naturally.

Tayo Oviosu: The Apposit partners, they’ve been together as partners and everything. So It was clear to me that the deal had to be looked at as from the partners coming in. So I think one of the best things we did was to split the acquisition from the hiring because on acquisition, your all partners we bring in. And I think it’s actually one of the tough points of negotiation, right? But on the hiring, we’re hiring four different individuals who are going into four different roles, right, and so you almost have to think about each person individually in that context.

Darius Teter: So Adam, back to you, did you bring in outside resources to assist you in selling your business? Did you have lawyers, advisors? Did you have your own board?

Adam Abate: We were always fairly self-reliant until we were forced not to be. So once we saw the contract from the Paga side, we said, okay, now, we need a lawyer. So we hired a lawyer. In terms of advice, initially, we reached out to our networks. We never hired a strategic advisor. So no, a lot of it, we did ourselves. A lot of the due diligence, I did. We didn’t have a lot of outside help. Wwe kind of work through it ourselves.

Darius Teter: What did you have to do on your side to prepare your team to bring onboard the leadership of Apposit?

Tayo Oviosu: Well, we did have to go through how we structure the group and what that meant for people’s roles. I think we actually did that process okay. I think the process where we could have done much better was in the onboarding of the Apposit team, right? So not the leadership, right, but the rest of the team, particularly those who are not already working on Paga into a new company. Adam and Layla on our human capital side have done a great job of reboarding the team. So in hindsight, that’s something that I think we would have spent more time on planning ahead to make sure that policies align and that we are able to announce that and actually walk people through that reboarding process.

Darius Teter: So that’s actually super important. I want to actually bounce that right back to Adam. As you’re putting together this sale of your business to Paga, what was the communication to the rest of the team? I don’t know how many employees you had. Was there a process on your side to help everyone understand the reason for the merger, the vision? Did you work to get that kind of buy in across your teams?

Adam Abate: At the time, we were about 50, 55 employees. And I think we made the assumption that we’re so aligned with Paga in terms of the work we do but also our values that we underestimated this and took it for granted. To a certain extent, we had kept the deal under wraps until it was finalized. We did do some communication, but I think people didn’t see how they fit into this picture, what it means to them, and why it was important to the company as a whole for the next stage of our growth. So yeah, if I would do it again, I’d definitely be much more deliberate and intentional about communicating and airing on the side of over communicating rather than not.

Darius Teter: It was imperative for Adam to make sure his employees were onboard. After all, like most tech companies, Apposit was asset light except for the all-important expertise of its people. Victor Basta believes that human capital is a major focus for companies looking to invest or acquire businesses in Africa.

Victor Basta: If I’m a large company doing an acquisition, one of the things I want is a really sturdy and deeper management team. So I’m going to have a premium in my mind for second-line management below the top two or three people, and I want to know that those people are also able to scale. And in Africa, there is, as I said, a huge dearth of that cadre. And so at an early stage, companies have the opportunity to create their own kind of talent academy internally and be able to develop people internally because being able to hire people who are very strong second-line managers, when you’re competing, they’re going to pay an enormous amount of money to get those people, and you’re not going to be able to compete with them in the open market generally as a startup or growth company. So growing your own, but being able to show a buyer that you’ve got a full house, and when you’re gone, there’s three other people who want your job. That is incredibly distinctive. Hard to do, but creates a degree of resilience immediately.

Darius Teter: So in the case of Paga’s acquisition of Apposit, the human capital was an important part of the deal. But when you’ve been working together for such a long time, it’s potentially tricky to get over the final hurdle when you’re no longer asking how, but how much.

Tayo Oviosu: I think about a couple of ways we looked at it. And this was slightly different than a traditional acquisition because Paga is the largest source of income. So we had to place a value on that and also think of it, if we were to replace Apposit, what would that cost us, and then also place a value on the other things Apposit was bringing Paga. And then from Apposit’s point of view, if a third party was trying to buy them, how would they view Apposit? And we basically leverage that to triangulate structure-wise. It wasn’t that we had a lot of liquid cash out there. So we had to figure out a deal that allowed us to leverage stock as well but figure out a valuation that is fair to them and also fair from our perspective to look at it, right?

Adam Abate: We agreed actually quite early on that we wouldn’t formally value the company because that didn’t seem fit for purpose. And so it was really from our side, and this may be a little bit less scientific, what felt right and all the ancillary benefits to the deal. It meant a big deal for us to work on something that we’re going to be fully committed to for the next five to 10 years. It meant something for us to be part of a big deal, a big picture, a big vision. So in terms of the valuation, I think that was a decision we made jointly. That it’s not a formal valuation in the sense but more trying to arrive at a place that felt right for both of us.

Darius Teter: I like that, but it was still tough, right, getting to that place. It sounds like that was a big part of the negotiation.

Adam Abate: There is one other lesson I learned. I think, Tayo, you articulated it for me. He said, “Negotiations go like this, which means that you just got to keep pushing through it.” I remember I had the first conversation with Paga’s board member. I listened quietly, and I took it back to the guys. And we’re like, “No, it’s not going to work.” let’s just write in the email, and say, “Forget this. Let’s do it this way.” And then we got a call from Tayo, he said, “Hey, hold on, hold on. This is not how it works. Let’s keep going.” And we talked, I don’t know, once a week, once every two weeks. The picture could look very different from one week to the next in terms of how the deal was structured.

Darius Teter: Which means also on your side, Tayo, that you guys were figuring it out along the way, too, trying to-

Tayo Oviosu: Yeah, I think that’s one thing I tried to figure out for each of the partners, what I thought was most important for them, and then saying, “How could you accommodate that?” And in almost every issue, there’s always a different viewpoint. So I fundamentally believe that when it comes to negotiations, right, I actually hate single-issue negotiation. I think it’s really bad if you get yourself to just one single issue, right? Try and have three, four issues rather than this or that, right? So if you deal in a package, then the person can think about a package deal and say, “Okay, fine. I can give here and kind of expand the pie overall.”

Darius Teter: For Victor Basta, the entire process of negotiation is characterized by a swinging pendulum of leverage. And you’ve got to recognize when the momentum is working in your favor.

Victor Basta: You end up giving stuff away. Your maximum point of leverage when you’re selling a business is of the time you’re agreeing the deal. At that point, your leverage begins to wane away until a week or two before the deal closes when you have the least leverage possible. What I try and do is plan ahead for compromises that seem bigger than they really are. So one big thing is around the point we talked about before, which is management retention and packages, right? If you can get a buyer a little more comfortable, change things around a little bit so that that part is really solid. They might forget the $20 million they want to take off of the price here.

Darius Teter: The closer you approach to the actual close, you, as the seller, are approaching your sort of maximum exposure in weakness in the negotiation. Buyers know that, so they’re going to plan a few body blows that they’re going to try to spring on you at the end. You, as the founder, have to understand what’s your zone of agreement and plan ahead. What are you actually willing to give up?

Victor Basta: And also you go a little further. In the process of due diligence, you are already listening to what the buyer is saying and you get to understand what really is important to the buyer. And so if you’re already preparing two or three or four of these gives late in the process, you want to design them so they’re of most value to the buyer, but it’s based on listening to them and understanding what’s really important.

Darius Teter: So when it came to actually closing the deal, Tayo says that most of the practicalities were agreed quickly and painlessly.

Tayo Oviosu: I don’t think it took us long, but how much is cash, how much is stock, is there a lock-up on the stock, right? And then for the employment contracts, what are the grades, what are the salaries, what are the benefits, what stock come along with that contract? Because for Adam, he would, I think, look at this not just as, how much am I making from the acquisition, but what’s the value that might go forward as well because I am giving up my dividend that I was getting as a partner, and then, what do I think that’s going to be worth, over what time period? So there are a number of all these different things that were coming together that we had to sort of play together to figure out what the full package looks like.

Darius Teter: So from your side, Tayo, part of the risk of this acquisition was, you’re still dealing with an unpredictable regulatory landscape. So you’re making a bet, but there’s things that are completely exogenous to the quality of Adam and his team and their ability to execute. So from your side, that probably made you careful about the valuation as well or its informal valuation.

Tayo Oviosu: Yeah, correct. And frankly, I mean, and I’ve said this to Adam, we looked at Ethiopia’s upside case. What if the regulator never allows us in? Do we still do this deal? And the answer was yes. Everyone in this partnership team will bring value to Paga, so we had to actually think about that as well.

Adam Abate: There was a lot of trust between us. So there was a level of confidence that the unanswered questions, we’d figure them out along the way. And then the other point was, and I think it’s credit to the way things are structured and the way we are aligned with the company, even if Ethiopia didn’t materialize, like Tayo said, we were still bought into everywhere else that we can contribute, and our upside is as aligned through and through. So I think that was a good thing.

Darius Teter: I just want to reflect on something you said, Adam, which is, when you have a great deal of trust, and you guys had your relationship. I think that means there’s less nitty-gritty details that need to be locked down in the acquisition because you trust that you will work, that you can’t predict the future perfectly, but you have the relationship that you believe you can work them out together. So you don’t actually have to negotiate every single minute detail because you understand that it might be more productive to work that out together.

The deal was officially closed in January 2020, and Apposit was acquired by Paga. One of their hopes was that Ethiopia would liberalize the financial and tech sector, and that would allow them to get Paga up and running there, too. It hasn’t happened yet or at least it’s moving slowly, but as Victor Basta explains, there are still plenty of benefits to the acquisition.

Victor Basta: Everybody looks for one plus one equals more than two. In that case, and again, time will tell, but you have an Ethiopian business, number one, so Paga is no longer Nigerian only. So from a positioning point of view, it does immediately broaden them in terms of business flow. True, it hasn’t happened yet in that geography, but people didn’t think that the fintech market in Nigeria would ramp this quickly. It’s come from nowhere. So it’s only two years. So these things can happen fast when there isn’t a lot of impediment. There are no legacy players anywhere in Africa. This is another positive point for a lot of these growth companies. There isn’t an Oracle that, if you’re Salesforce, you’re trying to beat, right? There isn’t one. Whether you’re doing telco, whether you’re doing media, whether you’re doing software, whether you’re doing supply chain, whatever it is, the competitors you have are people using phones, spreadsheets, and pen and paper.

Darius Teter: And so, after their two-year acquisition process, in almost 18 months worth of perspective, I wanted to know what Tayo and Adam had taken away from their experience.

Victor Basta: From the perspective of the person selling, as they are learning about your business, you should be learning about them, and you should be asking the same level of questions so that you’re equally doing your diligence. I think one of the things that was interesting for me in the acquisition of Apposit was particularly the Indian’s role coming into head of product. And I remember a conversation I had with Gideon, I said, “It really feels like I’m handing over my baby to you,” right, because I had been playing that role, and I knew fully well that we needed someone full-time playing that role, not me, right?

So at some point, as much as I love the product, I need to walk away from it as well. And yes, we’d worked together before, and I had a good sense of him, but still, nonetheless, it was like, “Wow, I’m actually… I am handing it over.” And it’s been amazing in the last… I mean, how time flies, right? I see so many things coming out, and this is awesome. There’s no way I could have done this. So I’m super happy about that still and the results of it. So going in was a big question for me as well, right? It’s like, okay, how do I feel about this?

Darius Teter: Yeah, interesting. Adam, any reflections on those points?

Adam Abate: Yeah, I guess in terms of advice to somebody considering it, the decision, actually, as complicated as it sounds, often boils down to a few principles. In fact, I think the reasons why you’re selling should not be over complicated. But those few reasons would be very important. We mentioned some, as a company, why we sold. We wanted to focus, we wanted to put all our energy into something really big. But also on a personal level, there were some principles. For example, I knew that probably more than the others, my role could potentially have the most change. But at that particular point in time, I said, okay, this is the next level of growth for me personally. I want this challenge, so I want to push myself outside of my comfort zone. So that was an important consideration for me.

So yeah, I think, boil it down to a few really important principles, but don’t overcomplicate it with all the details. And if it feels right… But for us, like I said earlier, this is our first time, and we’re kind of working through it. A lot of it came down to gut and how you really felt about it inside. Did all the pieces fit together? Did you wake up everyday thinking, “Yes, this is the right decision,” despite the difficulties in negotiating? Even now, almost two years down the line, with all the little problems we faced along the way, I often ask myself, “Was it the right decision?” And overwhelmingly, it comes back to yes because the fundamental principles why we got into discussion in the first place and we decided to sell are still there. They haven’t changed.

Darius Teter: Both Adam and Tayo were and still remain convinced that the acquisition was the right move. They’re united by their commitment to make Paga a success, and they share an infectious excitement for the big vision, that powerful goal to reach one billion people. But thinking back to the start of his entrepreneurial journey, Adam admits, at times, it felt like the odds were stacked against them.

Adam Abate: The ecosystem in Ethiopia at least doesn’t exist. Angel investment, venture investment, that kind of investment doesn’t exist. We bootstrapped Apposit. And also, I mean, just collaborating and developing fruitful partnerships is difficult, let alone the acquisitions. And I think that’s something that business entrepreneurs need to change their mindset. At least try it, experiment with it, and see if it works.

Darius Teter: So your deal, in some ways, has a really positive showcase for Ethiopia. What you described about, there’s very little venture growth capital available in Ethiopia, I think that describes a huge number of countries on the continent. Most of the deals are concentrated in South Africa, Nigeria, Kenya, and a few other places. There are a lot of entrepreneurs in a lot of countries in Africa that don’t have access to capital like that. And for them, it strikes me, the strategic acquisition ought to be an interesting path for them to pursue.

Adam Abate: Even before the acquisition, the partnership between Paga and Apposit to me was remarkable. I don’t know many such partnerships. You have a West African country with an East African country. Culturally, it’s probably as different as you can possibly get, working together for 10 years. And most of the technology of Paga was built in Ethiopia. That’s a remarkable kind of continental partnership story that is glossed over often.

Darius Teter: As we come to the end of today’s episode, I want to thank Adam Abate and Tayo Oviosu for sharing their story with us, and Victor Basta for providing his insights. We’re going to hear more from Victor later on this season. Although the acquisition process has many hurdles, Tayo and Adam were always aligned on their vision. And what began as a serendipitous meeting of two individuals on totally different paths has now evolved into an Africa-wide company with their sights set on global expansion. Or as Mark Twain so eloquently puts it, “Life is what happens while you’re making other plans.”

This has been Grit & Growth with Stanford Graduate School of Business, and I’m your host, Darius Teter. If you liked this episode, leave us a review on your podcast app. It really helps us to share the stories of these incredible entrepreneurs with as many people as possible. And stay tuned for an upcoming episode where we discuss international acquisitions with African entrepreneur, Caroline Wanjiku, and today’s guest, Victor Basta.

To learn how Stanford Graduate School of Business is partnering with entrepreneurs throughout Africa and South Asia, head over to the Stanford Seed website at seed.stanford.edu/podcast. Grit & Growth is a podcast by Stanford Seed. Laurie Fuller researched and developed content for this episode with additional research by Jeff Prickett. David Rosenzweig is our production coordinator, and our executive producer is Tiffany Steeves, with writing and production from Isobel Pollard and sound design and mixing by Alex Bennett at Lower Street Media. Thanks for joining us. We’ll see you next time.

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