Mastercard to acquire minority stake in MTN’s fintech business

Mastercard has agreed to purchase a minority stake in the fintech division of MTN Group, Africa’s largest cellphone provider, which it values at $5.2 billion.

According to MTN Group President and CEO Ralph Mupita, the deal will be structured as a commercial partnership on payments and remittances employing Mastercard’s technical infrastructure to develop throughout Africa and an investment in a minority share.

The Johannesburg-based company’s aspirations were boosted after obtaining a mobile banking license in Nigeria, its largest market, which allowed MTN to offer financial services to millions of new clients.

For the first half of this year, the transactions recorded by MTN’s mobile money business increased by 37 per cent to $8.3 billion; over 60 million active users executed them. At the end of June 2023, the MTN Group had over 290 million subscribers.

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While noting that the Group signed a commercial agreement with Mastercard to further drive the growth of the fintech business, MTN said:

“Following the bespoke process to identify and potentially introduce strategic minority investors into MTN Group Fintech, we executed commercial agreements with Mastercard to support the acceleration and growth of our fintech business’s payments and remittance services.

“MTN and Mastercard also signed a memorandum of understanding which provides for a minority investment by Mastercard into Group Fintech based on a total enterprise valuation of about US$5.2 billion for the business on a cash and debt-free basis.

“The signing of the definitive investment agreements is expected to occur in the very near term as we approach the finalization of customary due diligence. The closing of the investment will be subject to customary closing conditions.”

In 2021, Mastercard inked a deal with Airtel Africa, one of MTN’s competitors that saw the India-founded telecom receive $100 million for its mobile money business, Airtel Mobile Commerce BV, at a $2.65 billion valuation.

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According to Bloomberg, Mastercard’s planned minority investment in MTN mobile money, at a valuation of $5.2 billion, translates to 16x trailing EBITDA – far more than Airtel Africa’s corresponding 10x.

The cash might aid MTN’s balance sheet by temporarily substituting for dividends from subsidiaries and somewhat offsetting increased 2023 capital-spending projections — both of which are influenced by forex.