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OLX Group to become largest shareholder in FCG, the parent company of Cars45

OLX Group has announced plans to invest up to $400 million (₦144.6 billion) in Frontier Car Group (FCG) — the parent company of Lagos-based Cars45.

OLX Group to become largest shareholder in FCG, the parent company of Cars45
CARS45

OLX Group has announced plans to invest up to $400 million (₦144.6 billion) in Frontier Car Group (FCG) — a holding company that develops and operates used-cars marketplace, including Nigeria-based Cars45.

This new investment comes on the heels of the $89 million (₦32.1 billion) the OLX Group — the classified marketplace business of Prosus, a spin-off from Naspers — invested in FCG during its Series C last year May.

Side Note: In September 2019, Naspers — the South African media and technology conglomerate — listed its international consumer internet assets, including investment in Chinese company, Tencent, under the name Prosus on the Amsterdam Euronext exchange
In April 2019, OLX Group sold its assets in Ghana, Kenya, Nigeria, Tanzania, and Uganda to Jiji, a classified marketplace based in Nigeria. Aside other business reasons, this must have been a strategic move to ensure there is no conflict between OLX and FCG, particularly Cars45, because people also transact used cars on OLX.

This fresh $400 million investment, according to OLX Group, will include a primary injection of capital in FCG and the contribution of OLX joint-venture shares in India and Poland, as well as the acquisition of shares held by other investors, founders and management.

Ultimately, the deal will make OLX Group to become the largest shareholder in FCG, providing an exit for early stage investors like EchoVC Partners. It will also accelerate the growth of FCG to becoming one of the leading used-cars marketplace globally.

Togther with FCG, we are aiming to build the leading global used car marketplace, offering a premium and convenient service to millions of car buyers, sellers and dealers. We're in a unique position to accelerate the expansion of this platform worldwide. Our experience in India is a great proof of concept, where within the space of a year, our joint venture has already increased the number of stores threefold, with car purchase volumes continuing to grow by 10% month-on-month.

Martin Scheepbouwer, CEO of OLX Group

FCG was co-founded in April 2016 by Sujay Tyle (CEO), Peter Lindholm (COO), and André Kussmann (CTO), but operations began fully in September.

Through strategic merger and acquisition, FCG currently operates used-automotive online marketplaces in Argentina (Vendetuauto), Chile (Vendenostuauto), Colombia (Caro123), Indonesia (BeliMobilGue), India (Cashmycar), Mexico (VendeTuAuto), Nigeria (Cars45), Pakistan (Carfirst), and the United States (Webuyanycar).

Side Note: The acquisition of We Buy Any Car in the United States last year defeats the emerging markets narrative of FCG. Perhaps, it's build up to an imminent initial public offering on the New York Stock Exchange like Jumia.

At the 2019 NOAH Conference in Tel Aviv, the CFO of FCG, Peter Malmqvist, said that the company has raised more than $150 million in equity funding, excluding debt, and about 27 million used cars "are transacted annually" across the emerging markets.

According to the American serial entrepreneur, Sujay Tyle, since the first investment of OLX Group in FCG 18 months ago, FCG has nearly tripled its performance across every key metric. Tyle said, "This is a testament to FCG’s team, the ripe market opportunity, and the results of early integration with OLX in our key markets.

Together with OLX and Prosus, we are aiming to revolutionize the used-car market in several emerging and developed economies by adding trust, transparency and a comprehensive suite of services to all participants in the ecosystem".

Cars45: Exploring the used-automotive market in Nigeria

Cars45 was co-founded by Tyle, Lindholm, Etop Ikpe (CEO), and Iyamu Mohammed (VP Trading) in 2016. A year later, they raised $5 million (₦1.8 billion) in a Series A round from FCG, which is backed by Balderton Capital, TPG Growth, Partech Ventures, EchoVC Partners and Naspers.

Interestingly, Etop has served as the Commercial Director of Konga — one of the leading e-commerce platforms in Nigeria — and Managing Director of now defunct DealDey, while Emmanuel served as the Head of Sales, and Operations at Carmudi — a classified marketplace for cars, which was later acquired by Jumia and subsumed under Jumia Deals.

It is also noteworthy that Naspers ownership stakes in Konga were bought by Zinox Technologies when it acquired the e-commerce platform last year. And Jumia Group, a publicly traded company on the NYSE, is a portfolio company of Rocket Internet — the Berlin-based venture capital firm.

FCG values the Nigerian second-hand automotive market to be worth over $12 billion. Tyle said, "At least 2.1 million vehicles are sold each year in Nigeria. With a value between $12 billion and $13 billion, the Lagos second-hand market worth about the same as Sweden's".

Eghosa Omoigui, Founder and Managing Partner of EchoVC Partners — an early stage investor in FCG, said, "When we co-led the Series A & B rounds in Frontier Car Group/Cars45, we did so with the shared conviction that organising the used-car industry in emerging market was a gigantic business".

The United States Department of Commerce report shows that Nigerians spent $265 million on importing 43,394 units of used vehicles in the first half of 2019 (January – June), which represents a 14% increase when compared with the $231 million spent in the corresponding period in 2018.

Unfortunately, most Nigerians don't even have the luxury of importing used cars from foreign countries. Hence, they settle for cars smuggled — usually with dent — into Nigeria from neighbouring countries like Benin Republic and buying Nigerian second-hand cars.

Tyle added that Nigerians usually bypass dealership and do direct transaction, resulting in about 12,000 dealers selling only 8—10 cars on a monthly average.

Indeed, Nigerians prefer to just park their cars and place a bottle of water on it to indicate it's up for sale or paste "FOR SALE" poster on their windscreen with their contact details. Cars45 is trying to buck this trend with a model that promises to provide buying customers with the car of their dream in 45 minutes, while those selling would be credited at the same record time. Hence, the name Cars45.

Within the past three years of its operations, Cars45 has launched complimentary services, including Carsbazr, emergency roadside service, car inspection, autopreneur empowerment initiative, and merchant academy programme (MAP).

Through Carsbazr, Cars45 has held numerous auctions where Nigerian used-cars are sold. At its 26th auction in December 2018, Cars45 sold 20 cars, including Olubankole "Banky W" Wellington's 2008 Range Rover Sport, which was sold for ₦2.3 million.

Earlier this year, Cars45 announced a partnership with Enyo Retail & Supply — oil and natural gas company — to get more visibility and expand its footprints across the country.

Last month, Cars45 launched in Kenya.

Cars45 seems to be winning, are they, really?

From Peter's presentation at Tel Aviv, it is easy to conclude that FCG is winning, per revenue and growth. And it is tempting to say the same of Cars45.

But there are unverified litany of complaints (here and here) about Cars45 service, that they don't deliver on their brand promise of 45 minutes, shortchange sellers, and do not disclose all the faults with the cars being sold.

One thing is clear, however, the playbook of FCG à la Rocket Internet and Jumia will ensure the expansive growth of Cars45 across Africa.

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