The acquisition of Traction Apps, a Nigerian fintech startup, by OmniRetail, the B2B e-commerce company that topped FT’s list of Africa’s fastest-growing startups, adds to a growing trend of VCs leading consolidations of startups to create bigger entities more likely to create outsized returns.

This has played out in the acquisition of business banking startup Brass by a group of investors led by payment giant Paystack and the acquisition of digital trading fintech Chaka, which the acquirer, Risevest, another digital trading startup, disclosed was suggested by a mutual investor.

Ventures Platform, an investor in OmniRetail and Traction Apps, confirmed that these deals were prompted by investors. The VC firm also played an active role in the Paystack-Brass deal and facilitated the acquisition of Traction Apps.

“But the key decision on when and how to drive the process is mostly founder-led,” said Dotun Olowoporoku, managing partner of Ventures Platform. “Founders often use their judgment or tap into investor networks to help the process.”

The Traction Apps acquisition, an all-stock deal, according to a spokesperson for OmniRetail, gives Traction App’s investors; Multiple Partners, P1 Ventures, Ventures Platform, Voltron Capital and others, stakes in OmniRetail, a B2B commerce startup reportedly valued at $65 million in its last funding round.

OmniRetail declined to specify the value of the deal. It is also unclear what stakes Traction Apps’s investors will get in the acquisition.  Nonetheless, as is common in some acquisition deals, the whole value is not fixed and some of it will be determined in the coming years based on how much value the integration of both companies produces. 

The opportunity to gain a significant slice of OmniRetail has stirred excitement in Traction Apps investors who believe this acquisition spells out exponential growth for OmniRetail, according to a source familiar with the matter. Optimistic Traction App investors are willing to make further investments in the newly formed entity, according to the same source. 

Ventures Platform declined to confirm this but agreed that “OmniRetail is a compelling company with significant potential for investors interested in this sector.” 

The thinking of these investors is that the integration of Traction Apps’s financial services and its network of merchants can explode the growth of OmniPay, a proprietary financial service that Omnibiz says has boosted its efficiency and profitability in the fast and moving goods services sector where margins range between 3% and 6%.

“Just buying from distributors and selling to retailers did not have enough margin and benefits, but engaging with distributors on the platform and embedding working capital tools like OmniPay increased the value chain margin for us to hit profitability,” said OmniRetail CEO, Deepankar Rustagi, in an interview with TechCrunch.

OmniRetail claims that by January 2024, it had attained 9% gross margins and 5% net contribution margins meaning that for every transaction worth $1 (~₦1,500), OmniRetail makes $0.05 (~₦75). The startup also claims to have broken even in earnings before interest and taxes (EBITA), contrary to many competitors operating at negative margins or attaining only breakeven net contribution margins.

This acquisition gives OmniPay payment licenses of Traction Apps that would have taken a significantly long time to acquire from the regulator. Aside from collections, and supplier payment, Omnipay provides transaction data for generating credit scores for retailers who are otherwise unable to access financing from traditional lenders. Traction Apps which provides financing services to merchants can boost that segment.

“OmniPay will be able to integrate directly into the payment switch and give us the ability to deeper understand the wallets of our merchants and eventually provide them a host of value-added services in Fintech will be a key benefit for us,” an OmniRetail spokesperson told TechCabal. The fintech’s value-added services—bill payments, insurance and loans will be instrumental for Omniretail as well, according to the spokesperson.

Following the acquisition, the combined entity will service 180,000 customers in the wholesale and retail sectors, with annual transaction volumes projected at $1 billion and loan facilitation of $122  million annually. Mayowa Alli and Dolapo Adejuyigbe, founders of Traction Apps will remain in the company to lead the growth.

The acquisition of Traction Apps is an interesting turn of events overall.  The startup was initially working with OmniRetail as one of several financial services providers that enable payments and collections.  “It’s on trend. Most of the B2B eCommerce players have been building fintech roadmaps and this acquisition will be catalytic for OmniRetail,” Mikael Hajjar, a managing partner at P1 Ventures, one of the investors in Traction Apps, told TechCabal.

Hajjar also cited another company, Chari, a Moroocan B2B e-commerce startup that is making similar strategic acquisitions to scale. Chari has acquired two fintech startups to date: France-based Axa Credit, the credit brand of Axa Assurance Maroc and Moroccan fintech app Karny.

This acquisition may attract fintech investors to OmniRetail which has been trying to raise money in a Series A round.  In March 2024, CEO Deepankar said Goodwell VC and several development finance institutions (DFIs) have already committed $10 million. However, at GITEX Dubai, one of the world’s largest tech conferences, Dika Oha, OmniRetail’s chief innovation officer, shared that the startup has seen many interested investors decide against investing due to concerns about the effect rising inflation is having on the FMCG sector. This fintech play may change things for the company.

This trend of companies centring fintech in their growth aligns with a 2019 prediction made by Angela Strange, a general partner at the prominent venture capital firm Andrew Horowitz, who forecasted that every company would eventually become a fintech company.