Alan Knott-Craig

World of Avatar, the technology investment vehicle headed by Alan Knott-Craig, said on Thursday it is buying social media and instant messaging platform MXit from media group Naspers and the service’s founder, Herman Heunis. But does the deal make sense?

Already, many commentators have suggested that MXit is facing a number of threats to its core messaging business from services like WhatsApp and BlackBerry Messenger (BBM), both of which have enjoyed explosive growth, especially on smartphones, in the recent past.

TechCentral editor Duncan McLeod asked Knott-Craig to explain the rationale for the acquisition, which is still subject to the fulfilment of certain conditions, and whether MXit can see off the threat from international messaging services.

TC: You mentioned in the media release you issued on Thursday that you plan to “consolidate and strengthen” the core of the MXit business before moving to “implement the long-term strategy”. Can you flesh out in a little more detail what that long-term strategy is?

AKC: I can’t give away too much of the long-term strategy, mainly because I haven’t had a chance to talk to the staff about it yet. Only when we’ve taken control officially can we release more information. What I can say is we intend to expand geographically. We want to lock down sub-Saharan Africa.

TC: How will MXit play with World of Avatar’s other investments, such as in the applications space?

AKC: MXit is a community, right, and we have a couple of other communities in the group and we have a lot of applications in the group that kind of need a community. The community needs applications and the applications need a community, so there’s a nice fit in terms of everything working together.

TC: Commentators have suggested that MXit is a business in decline, with the popularity of other messaging services like BBM and WhatsApp soaring. Is this a concern?

AKC: I am 100% aware and conscious of the threat of WhatsApp and BBM. But MXit still adds more customers in SA every day than both of those services combined. As far as I’m concerned, the vast majority of phones in this country don’t use BBM or WhatsApp. We have a bit of a window of opportunity here to get our ducks in a row.

TC: Website Memeburn suggested in its coverage of the deal — and quoting unnamed sources — that World of Avatar paid R500m for MXit. Is that figure in the ballpark?

AKC: No, that’s pure speculation.

TC: Can you disclose the real value?

AKC: I wouldn’t mind, but in terms of the sale agreement I’m not allowed to.

TC: Is World of Avatar raising debt to do this deal?

AKC: No.

TC: So, is this an all-cash deal? Did you have the cash on the balance sheet to fund this?

AKC: The investors behind World of Avatar put the money down.

TC: Who are the main investors, apart from yourself?

AKC: There’s Francois Swart, and a couple of private investors that prefer to remain private for now. They are great investors, we see eye to eye, and while they don’t necessarily fit into the category of people who use MXit, they are looking for exposure to this type of asset.