Pepkor is merging its business Flash with Shop2Shop to form one of South Africa's largest fintech platforms focused on the informal economy. This combination is valued at R21.3 billion, and the retail group plans to list it on the stock exchange in the medium term.
Deal Structure and Volumes
As reported by the group, whose shares are listed on the JSE, on Wednesday, it intends to acquire a controlling stake of 57.1% in the combined business, provisionally named 'FintechCo'. To achieve this, Pepkor will inject R1.57 billion in cash into Shop2Shop, which will be used to repay the fintech company's debts. Concurrently, Pepkor will transfer 100% of Flash, valued at R10.6 billion, in exchange for new shares.
The combined platform will process over R200 billion in annual turnover across both formal and informal economies. Its functionality encompasses Flash's distribution network, which includes value-added services such as selling airtime, electricity, and digital vouchers through Spar stores, as well as Shop2Shop's business, which handles merchant acquisition, payments, cash management, and trade services.
Strategic Importance for Pepkor
This move represents Pepkor's most significant expansion beyond retail into the financial services sector. The group's fintech segment grew by 31% last financial year, reaching R16.6 billion, and in November, the group received approval to enter the banking sector. This merger places the company in direct competition with Nasdaq-listed Lesaka Technologies in the race to digitize informal trade.
The logic behind the deal is explained by financial metrics: Flash is the larger business with revenue of R11.2 billion and an EBITDA of R900 million in the last financial year. However, Shop2Shop demonstrates significantly faster growth: its revenue has increased by an average of 28% annually over three years, compared to 9% for Flash, and its EBITDA grew by 85% versus 28% for Flash. Thus, Pepkor is effectively investing to attach its mature distribution system to a faster-growing mechanism.
Management and Founder Involvement
Shop2Shop founder Peter Berry stated that the company was created to provide specialized solutions for the large and underserved market of informal traders in South Africa, empowering small entrepreneurs. He added that with Flash, they will be able to deepen their offering and scale, positioning a proven fintech platform in South Africa.
The announcement touches upon corporate governance: Pepkor CEO Peter Erasmusus holds an indirect minority stake in Shop2Shop through an affiliated company. This stake existed prior to his appointment at Pepkor and was previously disclosed in the company's annual financial reports.
Following the transaction, Erasmusus will indirectly own 13.2% of FintechCo, valued at approximately R2.8 billion based on the implied transaction value. His stake will be alongside Berry's 24% and the remaining stake held by Shop2Shop employees. Pepkor announced that Erasmusus abstained from all discussions and decisions regarding the deal, independent valuations were obtained for both entities, and independent directors concluded that the deal was fair and reasonable, confirmed by a voluntarily obtained independent fairness opinion.
Since Erasmusus's interest is below the 35% threshold for JSE listing requirements, the deal is not classified as a related-party transaction—and as a Category 2 transaction, it does not require shareholder voting. Shop2Shop shareholders will retain at least 15% of FintechCo for five years, with 'on-demand' and 'buyback' options exercisable between the fifth and eighth years, providing a path to liquidity if the planned listing does not occur; all these options are voided if the listing proceeds. A separate buyback and call agreement covers Flash's SIM card distribution business, which may be sold back to Pepkor. The deal remains subject to regulatory approvals.
