How to build South Africa's largest independent payments processor?
For the team of investors, innovators and entrepreneurs who built Adumo into one of the dominant forces in South Africa's payments landscape, the answer lay in long-term vision, a focus on execution, and the power of partnership.
Adumo is a South African-founded payments company with 23 000 active merchants in 13 African countries.
The company was created in 2019 when fintech investment company Crossfin, in partnership with Apis Private Equity Fund, acquired Sureswipe and combined it with other payments-focused companies in the Crossfin stable, including Innervation Pan African Payments (subsequently merged with Sureswipe to create Adumo Payments) and Innervation Rewards (subsequently renamed Adumo Payouts).
Four years later, Lesaka Technologies announced a R1.6-billion deal to acquire Adumo. The deal was finalised in October.
Dean Sparrow, co-founder and CEO at Crossfin, says the intention from the outset was to create the largest independent merchant acquirer in the country. "The initial pieces of what would become Adumo already emerged in the early 2000s, but it was only really in 2019 with the acquisition of the stake in Sureswipe that the vision became a reality."
An 'overnight success' 20 years in the making
The genesis of Adumo stretches back to the early-2000s. Payment entrepreneur Vaughan Alexander had built an extensive medical claiming infrastructure and augmented the capability by acquiring a switching platform and operationalising a card payment, value-added service (airtime and electricity) and loyalty capability.
Alexander had overseen this repositioning at the time within a wholly owned subsidiary company of the UCS Group - incidentally where Sparrow was initially the Group CFO.
"In the early-2000s we were approached by a petroleum company to develop a customised software solution for their forecourts and convenience stores," says Sparrow. "The solution had to include a payments solution. We realised that, from a technology perspective, it was very close to what Destiny could do. Work commenced to get the solution to enterprise grade, and in the process started our journey into the payments industry."
At around the same time in 2007, a young entrepreneur by the name of Paul Kent had started a company to help doctors take debit and credit card payments. "The mid-2000s saw rapid changes in the private medical aid market, especially as medical benefit to members was reducing. Doctors who historically received payment for services from a medical aid needed the ability to accept alternative payment methods, such as bank card payments, direct from patients. At that time card acceptance was not new but it was uncommon in a doctor’s practice. Healthbridge (a Tradebridge group company) and a processor of medical aid claims identified this growing need and in 2007 launched Sureswipe to doctors as an add-on product to their medical aid claim processing."
Crossfin's other co-founder, Anton Gaylard, joined UCS in 2009 to look at the group's transactional solutions assets, which at the time included Destiny, Verifone (a provider of payment terminals), wiGroup and two loyalty businesses.
"We started putting a strategy together to build a business out of the retail-focused assets, with payments as the core rails," explains Gaylard. "Eventually we combined the assets into a single company - Innervation - offering integrated loyalty and payment solutions to Tier 1 and 2 retailers."
The business grew swiftly, but competition from the banks - who recognised the opportunity in expanding payment services to a greater share of the population - forced a change in strategy. "We couldn't compete with the banks' offering to Tier 1 retailers and redirected our focus from this part of the market. We were left with businesses focusing on the Tier 2 retail and informal market. We realised we were missing the middle market: we needed a solution for SMEs."
Partnering for success
In 2017, the Crossfin team identified Sureswipe as a key target to fill the gap between Tier 2 and informal customers. "We knew that adding Sureswipe to the portfolio would allow us to realise our vision of building the single largest independent merchant acquirer in South Africa. When the company came to market, we chose to join the bidding process."
At the time, the Crossfin was bidding against a number of global acquirers, one of which was the emerging market financial services/financial technology private equity investment firm, Apis Partners. "Apis had previously expressed interest in acquiring Innervation," explains Sparrow. "We decided to join forces and combine our capabilities. Apis could inject cash into the business and we could inject our assets and some cash to capitalise the newly-created group. In 2019, Adumo was born."
Paul Kent was appointed as Adumo’s Group CEO, overseeing the enlarged business with a mandate to bring all the disparate pieces together into a compelling value proposition.
“We recognised that in-store card payments was an extremely competitive segment in South Africa. To remain competitive, we introduced a vertical approach, first with the acquisition of GAAP and then as we diversified our offering to include online payments following our acquisition of Wirecard SA. We retained GAAP as a stand-alone business due to its high performing management team, maturity of operations and high-level of service but augmented payments as an embedded offering which is now delivering incredible growth.”
To fund the acquisitions, the team needed additional capital. In 2021, the International Finance Corporation invested $15-million in Adumo, enabling the team to acquire the two additional businesses to create a comprehensive and highly compelling payments group.
"We had defined our exit period upfront when we created Adumo, giving ourselves a five to seven year window," explains Gaylard. "That would put 2024 as the ideal exit date.”
However, as with any other business that relied on trade for their revenue, Adumo first had to overcome the existential threat of the Covid-19 lockdowns.
Challenge & a goal fulfilled
Kent says the timing of forming Adumo could not have been worse. They had just closed the deal and had moved into new combined offices in February. By March, Adumo – like nearly every other business - had to close down due to the pandemic.
“Trying to build a team when 90% of staff were working from home was incredibly difficult. However, the team rallied and we built a new culture, moved all our clients onto a single switch and operating platform, and significantly improved our product offering and service delivery. We were fortunate that we had an innovative and committed team as well as supportive shareholders that provided access to cash.”
During this bleak period, Kent says the support of Adumo’s international and local shareholders was vital. “Apis provided much needed guidance on what was happening internationally, sharing learnings from markets where the effects of lockdowns were ahead of South Africa, and bringing best practices and insights from these markets. Crossfin was extremely active working with the team to manage cashflows, assisting in designing and launching alternative revenue opportunities, and providing much needed support to myself and the executive team.”
Throughout it all, the team kept a close eye on the exit date. Fortuitously, Adumo and its shareholders were approached in early 2023 by technology group Lesaka, who saw huge value in the company as a crucial cog in its own longer-term strategy.
The team started working on the offer and doing the due diligence. The value of the deal and Adumo's dominant position in the market meant the team had to secure approval from the Competition Commission.
Happy beginnings
After an almost year-long process, the sale of Adumo to Lesaka was concluded in October 2024. The majority of Adumo's shareholding, including most of the executives that built and grew the initial businesses that eventually formed Adumo, have not exited but rather taken shares in Lesaka Inc.
Alexander notes the role the investors played in getting the business to this point. “Having worked with many other fintech investors across the continent, it's clear that it comes down to the people, not the tech. It's the people, their ideas, and ability to execute. And this is where Crossfin augments and strengthens the companies they invest in.”
Kent adds: “The Crossfin team are active investors that want to be involved in the business and play a supporting role in the success of companies they invest in. Anton and Dean bring deep fintech knowledge and expertise, as well as a willingness to connect people and ideas to unlock shared value. If the opportunity arose to work with the Crossfin team again, I wouldn’t hesitate. The level of professionalism, expertise and support that we received from Crossfin was beyond expectations.”
Sparrow is upbeat about the prospects for further deal-making. "The Adumo deal is the third material and positive exit in just under four years, and the second successive one of over R1.5-billion in equity value realised, all from assets that started at a fraction of the size. And each deal also gives us the added benefit of an expanded network, which benefits the entire armada."
Gaylard adds: “The Adumo deal validates our positive approach to securing a positive exit for shareholders, management and the associated businesses. We will continue to work with our armada to realise our vision of becoming the leading independent portfolio of fintech assets, both past and present, in Africa by 2027."
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