The acquisition of a major Nigerian e-commerce player will be a cautionary tale for investors

Two months after cutting nearly 60% of its staff, Konga, one of Nigeria’s leading e-commerce companies, has been acquired by Zinox, a local tech firm which manufactures and distributes computers and also manages data centers.

The acquisition sees Zinox take over Konga’s assets including its online mall which currently serves over 10,000 merchants. Zinox also takes ownership of KOS-Express, Konga’s in-house delivery and logistics company as well as KongaPay, its mobile payment solution.

The total acquisition price remains undisclosed. But Zinox spokesman Gideon Ayogu told Quartz the cash-for-equity deal was “way higher” than the $10 million price that has been widely reported. The deal will see Zinox buying out ownership stakes from Naspers, Africa’s most valuable company, and Kinnevik, a Swedish investment firm. It is unlikely that either investor made a profitable exit with Konga believed to have raised at least $75 million since launch in 2012, though not all from Naspers and Kinnevik. Neither responded to Quartz’s email inquiries.

Acquiring Konga is not Zinox’s first play in the Nigerian e-commerce space. In 2008, it launched BuyRightAfrica, an e-commerce platform, but after struggling—given the lack of online payment options at the time—it stopped operations in 2013. The company is also affiliated with Yudala, another local e-commerce company owned by the son of Zinox’s CEO, but Ayogu says Zinox does not own shares in Yudala. As such, expectations of a possible merger between both companies will not happen. Ayogu tells Quartz, Zinox now owns 99% of Konga.

Konga’s operational struggles have highlighted the difficulty startups face in Nigeria where business reality betrays the vast population size and the nearly 100 million internet user base. In 2016, Konga’s active customer base was 184,000 (pdf) (less than 1% of the country’s population), according to Kinnevik’s second quarter report that year. Jumia, Konga’s close rival which is owned by Rocket Internet, has also struggled in the promising, but tough market.

Over the years, a lack of profitable exits from African startups by investors has often been held up as a reason for funding gaps on the continent. The inability of Konga, one of the continent’s best funded startups, to deliver returns on investment for both Naspers and Kinnevik will do little to dispel that notion. For Naspers in particular, running internet businesses in Nigeria has proven difficult with several ventures, including online marketplaces, messaging apps and classifieds, proving to be more misses than profitable hits.

Zinox is bullish about Konga’s prospects and plans an expansion into other African countries by 2019. Shola Adekoya, Konga CEO, confirmed to Quartz that he will be staying on as CEO under the company’s new ownership. Adekoya will likely be looking to consolidate on Konga’s recent business model changes. In Nov. 2017, it stopped its pay-on-delivery option mainly due to the frequency of cancelled orders and security challenges often faced by delivery personnel. It also shut its warehouse service and started changing merchants rental fees.

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