NASPERS’ SOUQ SALE IS ALL PART OF PLAN
The South African group is bent on pursuing more deals after its litle bit of business with Amazon, reports Gavin Du Venage
Naspers, the South African media and technology group that recently exited from Souq.com, is not done with the Middle East just yet. In March The National reported that Naspers, Africa’s largest investment company, had sold its holdings in Souq.com to the US online retailer Amazon.
The amount Naspers received for its just over 36 per cent stake was not disclosed, but the deal adviser Goldman Sachs called it “the biggest ever technology merger and acquisition transaction in the Arab world”.
It had bought into Souq.com back in 2012, so its departure just five years later may appear on the surface to be stepping back from the region.
In all likelihood, though, the sale to Amazon was probably just a good opportunity to take a cash windfall and redirect the profit into other start-ups getting on their feet.
“The disposal of Souq.com to Amazon follows Naspers’ overall strategy,” says Wayne McCurrie, a portfolio manager at Ashburton Investments in Johannesburg.
“If you can’t dominate you consolidate with other players to be No 1. Or sell your business to the No 1 player in the market – Amazon – which is what they have done with Souq.”
Although routinely described as a media or tech company, Naspers also has features of an investment outfit with media and technology long-term holdings. The Cape Town-based company was founded almost 100 years ago as a newspaper publisher. It spent much of the 20th century printing Afrikaans language newspapers, moving into pay TV and eventually online media.
In 2001 Naspers invested US$32 million in what was then a Chinese start-up called Tencent for a 46 per cent share. Today Naspers’ holding has been reduced to about a third of Tencent but that investment is now valued at around $80 billion. Tencent is one of the world’s largest internet platforms dominating the Chinese market worth about $340bn.
This move was a risky venture at a time when China and its murky internet ecosystem were very much unknown quantities to the outside world. The chief executive at the time, Koos Bekker, saw the move pay off in spades, turning him into a billionaire and Naspers into a $75bn company.
Although Naspers now has a diverse portfolio of media and tech assets – Showmax, an online subscription video on demand service that launched in South Africa in 2015 is among its assets – its fortunes tend to ebb and flow with Tencent’s. In early July China’s
The People’s Daily blasted Tencent for being harmful to children who it said were becoming addicted to the Tencent-owned fantasy role-playing mobile gaming hit Honour of Kings.
The report spooked investors who feared The People’s Daily was a proxy for official thinking, and that restrictions on the game could be coming. The editorial tanked Tencent’s share price by 5 per cent in Hong Kong – and Naspers followed suit in Johannesburg.
Tencent has subsequently promised to limit playing time for younger children, but the incident showed Naspers’ vulnerability to its biggest prize.
“They definitively are very active in other business areas,” Mr McCurrie says. “They invest around $1bn per year. The reason for the domination of Tencent is simply its size and its spectacular success.”
Meanwhile, Naspers is now seeking fresh ventures in India. “India is a high-growth internet market, with significant potential from an e-commerce perspective,” says Meloy Horn, the head of investor relations at Naspers .
“The market opportunity is sizeable, over time probably second only to China.”
She said the company had already embarked on e-commerce initiatives in India, such as an investment in Flipkart, the country’s largest online retailer. In June Naspers put $71m into Flipkart, raising its stake to just over 16 per cent.
Other Indian exposure includes stakes in the online travel service MakeMyTrip, in the online classifieds OLX.in and in the internet payments platform PayU India.
Naspers is not alone in seeking Indian assets; Amazon is also on the hunt. Naspers estimates that the total Indian online market is now worth $15bn. It regards Flipkart as market leader with 57 per cent share.
“India is clearly a potential major market and has certain characteristics similar to China and Naspers does want exposure to India,” Mr McCurrie adds.
On a completely different track, Naspers has made a move into the food-tech sector in India by investing in the online food delivery start-up Swiggy, based in Bangalore.
Valued at about $400m, Swiggy delivers food from neighbourhood restaurants to customers.
Food delivery apps appear to be the latest craze in the tech world and Naspers has also recently invested about $440m in Delivery Hero, a Berlin-based outfit. At its IPO debut at the end of June, Delivery Hero was valued at more than $5bn.
As for the Middle East and UAE, Naspers will continue to search for opportunity, says Ms Horn.
“The transaction was not a decision against the Mena region, we continue to have a strong presence via dubizzle, the leading online classifieds business in the region.” MIH, an investment
If you can’t dominate you consolidate with other players to be No 1. Or sell your business to the No 1 player in the market – Amazon – which is what they did with Souq
subsidiary of Naspers, became the majority shareholder in the online classified major in 2013, after upping its stake from the 25 per cent it acquired in 2011.
Naspers’ Middle East exposure is also solidified through its investment in India’s OLX and PayU, both of which have a reach into the Mena region.
The company has numerous businesses in its portfolio, some of them very early stage and others more mature, profitable businesses which are operated for their cash flows.
“We allocate our capital in a very disciplined way – we are a long-term, growth-focused company, and this implies that we need to continuously reinvent ourselves,” Ms Horn adds.
And, given its stellar successes so far, there seems little reason to doubt that Naspers’ long-term outlook is more than healthy.