Ethos Capital and ARC to acquire Crossfin

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Ethos Capital and ARC to acquire Crossfin

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Published Date: 2021-11-25 | Source: INCE|Community | Author: The Finance Ghost

Ethos Capital and ARC to acquire Crossfin

Ethos Capital is keeping SENS busy. Hot on the heels of the Brait capital raise yesterday comes another transaction, this time in the Ethos private equity funds in which the listed Ethos entity is invested.

The other key character in this story is the listed ARC entity (African Rainbow Capital Investments), the limited partner in the fund that holds 49.9% in African Rainbow Capital Financial Services Holdings (ARC FSH).

I know, it confuses me on a good day too. It gets worse before it gets better, because we haven't even discussed what they are buying yet.

The Ethos Mid-Market Fund has led a deal to buy 100% of Crossfin Technology Holdings. Other investors in the consortium include other Ethos funds as well as ARC FSH.

This is a lot for a Thursday morning, I know.

The consortium has put R1.5 billion on the table in a combination of acquisition and growth capital. ARC FSH is good for a 37.33% stake in Crossfin for a consideration of R600 million. The listed Ethos entity has made previous commitments in two of the Ethos funds and will invest a combined R178 million into Crossfin.

Having now dealt with the convoluted structure at the top, we can move into what Crossfin actually does.

Crossfin is an independent fintech platform that has a "highly differentiated business model" that supports an ecosystem of fintech businesses. Founding investors Capital Eye Investments and the Multiply Group will exit the business, having held stakes since 2017.

Crossfin has investments in three pillars.

Payment Technologies

The main investment in this pillar is Adumo, which processes around 200 million payment transactions annually across 50,000 active merchants. Adumo works with Retail Capital on the Merchant Cash Advances product and with Tymebank on a Buy-Now-Pay-Later product. Adumo's offering is particularly strong in the Tier IV merchants' segment and the informal economy through subsidiary iKhokha.

Crossgate Holdings is also in this pillar, focusing on card issuing for retailers, banks and non-bank financial institutions.

Smart Funding

Crossfin is invested in Retail Capital, which analyses transactional payment data to determine repayment capability and extend funding accordingly. In other words, Retail Capital lends money to retailers. The name was probably the first clue.

Venture Capital

Crossfin Ventures contributes 5% of the value of the business but allows the company to gain early-stage exposure to emerging trends in the industry.

This segment is in the process of buying Sybrin from EOH as part of a consortium that also includes One Thousand and One Voices. Sybrin is focused on the financial sector and uses artificial intelligence and machine learning.



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