Econet’s reunion with EcoCash’s fintech businesses a strategic move

Zimbabwe Stock Exchange listed entity, Econet Wireless Zimbabwe (Econet), has released more details of its intention to reacquire the financial technology (fintech) businesses it demerged to EcoCash Holdings in 2018.

This move has sparked interest in the market, with many seeking to understand the rationale behind the reunion.

Econet believes that bringing the fintech businesses, which include EcoCash (mobile money), VAYA, Econet Insurance, Econet Life (micro-insurance), MARS, and Maisha Health Fund (health insurance), back under its wing will create a more competitive entity. The company sees an opportunity to leverage its extensive subscriber base of over 14 million, and established delivery channels to propel the fintech businesses to new heights.

According to Econet in a press announcement released today, the current market landscape presents a different scenario from the one that existed at the time of the demerger in 2018.

Regulatory changes and evolving market dynamics have rendered some of the initial conditions that underpinned the separation obsolete.

By reuniting the entities, Econet argues that it can streamline operations, improve efficiency, and offer a more comprehensive suite of products and services to its customers.

In the press release Econet highlights that that the Net Asset Value for the combined entities shrunk from over US$810 million pre-transaction to a current combined value of less than US$450 million.

Further, liquidity on the stock exchange for EcoCash Holdings Limited has thinned from a normalized daily average of US$108,000 in the first year of trading, down to US$61,000.

Econet believes that the reunion can help to reverse these negative trends.

Econet proposes to use a combination of its own treasury shares and cash as consideration for the transfer of the Fintech Businesses from EcoCash Holdings.

The book value of the Financial Technology Businesses as at 31 August 2023 was $325 billion, which is less than 50 percent of the $3.3 trillion book value of Econet as at 31 August 2023.

This means that the Scheme of Reconstruction does not qualify as a Major Asset Transaction on the part of Econet as defined by Section 226 of the Companies And Other Business Entities Act (Chapter 24:31).

Since the transaction is not classified as a major asset transaction, shareholder approval is not required.

As part of the Scheme of Reconstruction and following the transfer to Econet of the Financial Technology Businesses referred to above, Econet shall pay the agreed total consideration that is equivalent to 521,861,057 Econet Shares, using 271,597,195 Treasury Shares that represent circa 50 percent of the purchase consideration (Shares Consideration) and the Cash Equivalent of 250,263,862 Econet shares will be calculated using the 30 Day VWAP of each Econet share to the period of date of payment (Cash Consideration).

Analysts suggest that the acquisition could benefit Econet in several ways. Firstly, it allows the company to capture a larger share of the mobile money and digital financial services market in Zimbabwe.

EcoCash, the crown jewel of the acquired businesses, is already the dominant mobile money platform in the country. Integrating it more closely with Econet’s core telecoms business could unlock new revenue streams and enhance customer loyalty.

Secondly, the acquisition presents an opportunity for cross-selling. Econet’s vast network of mobile subscribers can be introduced to a wider range of financial products and services offered by the fintech businesses.

This could lead to increased adoption rates and boost overall profitability.

Thirdly, the combined entity would be better positioned to navigate the evolving regulatory environment.

By having greater control over both the telecommunications and financial technology aspects of its business, Econet can ensure better compliance and adapt to regulatory changes more effectively.

However, the proposed acquisition is not without its challenges. Integration issues could arise, and ensuring a smooth transition for both employees and customers will be crucial. Additionally, regulatory approval will be necessary.

Despite these challenges, market experts believe that the potential benefits of the acquisition outweigh the risks.

Econet’s move to reacquire the EcoCash fintech businesses is a strategic one, driven by a desire to strengthen its market position and tap into new growth opportunities in the dynamic digital financial services landscape, according to Trigrams Investments analyst Walter Mandeya.

“The success of this venture will depend on Econet’s ability to execute a seamless integration process and capitalize on the synergies between its telecoms and fintech operations,” said Mandeya.-ebusinessweekly