In 2023, e-commerce is big business, and has been this way for a couple of decades now.
In the MENA region, the sector has only been catching up in the past several years or so, for many reasons. Last-mile delivery in the region was shoddy at best, the online payments landscape was a fraction of what it is today, not to mention the high percentage of unbanked individuals that exist in the region, and finally, there was a lack of a wide variety of brands catering to consumer needs. Back then, if you wanted to buy online in a country like the UAE, Souq.com (now Amazon.ae) was one of the few reliable e-tailers on the market.
Fast-forward a few years and one pandemic later, and we are seeing notable growth rates. Recent data revealed that one facet of e-commerce in the MENA region, B2C, is in fact swiftly catching up to global superpowers like the United States and China. This has been thanks to rising internet penetration rates, growing incomes, high possessions of smartphone devices, the increasing presence of global players, and enhanced supply chain solutions.
In light of this increased activity, we are seeing more e-commerce brands pop up than ever before, many of which are a few steps away from a breakthrough success. This is where a company like Opontia comes in.
The origins of Opontia
Founded in February 2021, the UAE-headquartered startup specialises in acquiring e-commerce brands and scaling them. Unlike a VC, for example, it only focuses on brands that are actively making a profit, which reduces risk and ensures their portfolio is comprised of winning brands.
While we have seen similar instances of this business model internationally, such as with Germany’s Razor Group and US-based Branded Group, it doesn’t have much precedence in MENA. This has been one of the reasons the company has been able to amass significant funding in such a short period of time. By the end of 2021, less than a year post-launch, Opontia had raised a total of $17 million in equity and $25 million in debt, from investors including Raed Ventures, Global Founders Capital, Partners for Growth, Upper 90, VentureSouq, and Hosam Arab, founder of regional BNPL unicorn Tabby. The company has even received support from Tushar Ahluwalia, the CEO of its aforementioned German counterpart, Razor Group.
Aside from the novelty of the business model, the fact Opontia only acquires profitable brands means there is much less risk involved for investors. Additionally, the company is founded by experienced execs Philip Johnston and Manfred Meyer, who have spent time in venture and finance ecosystems around the world, with roles across companies like Lazada, Rocket, Alibaba, Digikala, and McKinsey, among others.
Manfred Meyer (left) and Philip Johnston (right), the co-founders and co-CEOs of Opontia
The co-founders complement each other well, as Johnston comes from a finance background, while Meyer is more involved in the operational side of e-commerce.
Speaking with the Abu Dhabi SME Hub, Johnston explained that Meyer had moved to the UAE a few years back and had founded a sort of precursor to their current venture. The company he launched at the time was an e-commerce enabler that helped brands and businesses sell on platforms like Amazon and noon. The strategy and aspirations behind this company ended up informing what would later become Opontia.
“We had seen that there was a funding gap in the market,” Johnston said. “There were many e-commerce sellers that had founded businesses which were profitable and growing but couldn’t scale them… there was no exit path for them.
“We founded [Opontia] to provide another funding option for those e-commerce sellers where they can sell their business to us, we’ll take over and scale it as fast as possible, and then give some share of the growth and profit over the following few years.”
How it works
First contact occurs in one of two ways: either Opontia scouts out a brand and reaches out to offer to acquire it, or the brand gets in touch with Opontia to explore the possibility of a buyout.
Opontia puts forward a proposition, and if there is interest, it signs an NDA (non-disclosure agreement) to allow them to view the finances and records of the brand in question under full confidentiality. At this point, there is a back-and-forth exchange of data and metrics over 1-2 weeks to ensure Opontia has a full picture of the company to validate its interest. If Opontia is satisfied with the performance of the company, it will offer the brand a letter of intent (LOI), a non-binding offer to acquire the business, Johnston explained. This is then followed by further documentation and 6-8 weeks of full-on due diligence on Opontia’s part, before the acquisition is finalised.
The acquisition would usually result in an upfront cash component as well as an earn-out payment, which the founders receive once their sold brand achieves certain targets. This incentivises founders to stay on as consults for 3-6 months to help the transition of the brand to its new owner, and to ensure smooth operability and that these targets are hit. Johnston said that while most founders completely exit their company, some stay.
Past that, Opontia has full control of the company, and it proceeds to grow it as fast as it can.
According to Johnston, they have had some great successes, with some of their acquired brands, like Novimed, tripling their revenue in the first year, and sustaining growth afterwards.
A promotional video showcasing Novimed, one of Opontia's fastest-growing brands.
Opontia is active in 4 markets
Currently, Opontia operates in the UAE, Saudi Arabia, Turkey, and Poland. Johnston highlighted.
In terms of the geographic split, most of their sales occur in Turkey and Saudi, with slightly more activity in Turkey.
Ranking their markets, he explained that Turkey is a hotbed for promising, profitable e-commerce brands, followed by Saudi Arabia, Poland, and then the UAE.
The reason for this ranking is that the UAE is more of a distributor market, where most e-commerce stores are either selling white-label brands manufactured in China, or products by well-known brands that are too big for Opontia to acquire.
Saudi Arabia, on the other hand, has much tighter regulations on what products can enter its market, which means that brands have to resort to local production to manufacture their goods. This results in a lot of homegrown innovation, and a lot of local brands that are worth acquiring.
Ultimately for Opontia, however, it’s Turkey that has the largest number of local brands.
“I think that’s partly to do with the fact that it’s a very low-cost manufacturing base and that means that people have access to create brands easily,” Johnston noted.
Moving forward, Opontia has plans to acquire 12 new brands in the coming year with a shared total revenue of $30 million at minimum.
“Our brands are growing organically across the portfolio, close to a hundred per cent per year,” Johnston said. “We’re expecting $50-60 million of top line by the end of next year.”
Expansion to new markets is on the agenda, but the current focus is on acquisitions.