The day Alan Knott-Craig bought Mxit for R330 million

In his new book, Life Lessons, How to Fail and Win, Alan Knott-Craig Junior tells the story of how he bought Mxit from Naspers and Herman Heunis for R330 million.

Mxit was founded by Herman Heunis in 2005 as a way for South Africans to message each other without having to pay for expensive SMSes.

Users could communicate with each other on the Mxit platform using mobile data for less than 1c per message. At the time, an SMS cost between 30c and 80c.

The platform quickly gained traction and signed up millions of South Africans, especially younger people.

Its success attracted the attention of big technology companies, and in 2007, Naspers bought a 30% stake in Mxit for R100 million.

In 2010, Knott-Craig founded World of Avatar. Under this banner, he was looking for opportunities in the technology space.

In 2011, he contacted Heunis after rumours in the market that there was friction in the Mxit boardroom. Heunis had reportedly fallen out with Naspers.

After some back and forth, Heunis said he and Naspers were willing to sell the company for Knott-Craig’s suggested price of R670 million.

The selling valuation was at a price-to-earnings (P/E) multiple of 30, which means it was a very good offer.

However, Knott-Craig could not raise the money despite concluding a favourable due diligence process. He had to cancel the deal.

The disappointment quickly turned to elation after Heunis’ lawyer called Knott-Craig and said they were open to a much lower cash offer.

He offered R330 million for Mxit and was given two weeks to raise the money. This time, he was successful.

On 12 October 2011, Knott-Craig closed the deal. He described it as “one of the best days of my life”.

Mxit struggled, and the company ultimately closed

Mxit was riding high. By 2012, Mxit had over 10 million active users and signed up between 35,000 and 50,000 new users daily. However, it had to make money.

Knott-Craig’s plan was to make Mxit a prepaid airtime distribution channel and encourage users to move to Cell C.

A few months before buying Mxit, he reached an agreement with former Cell C CEO Lars Reichelt to sell airtime.

However, Reichelt left Cell C in July 2011, and his successor, former Vodacom CEO Alan Knott-Craig, did not see sense in the deal. It was downhill from there.

Mxit was struggling with cultural challenges and shareholder disagreements. It was also facing an existential threat from WhatsApp.

WhatsApp was becoming the default messaging app globally, and Mxit did not have a suitable smartphone app to compete effectively.

Knott-Craig attributed Mxit’s failure to a poor strategy. He said positioning it as a WhatsApp competitor was suicidal.

“I could not get my prepaid distribution across the line. Then we messed up the smartphone experience,” he said. “And then, the final straw, I had a fallout with my most important investor.”

On 12 October 2012, exactly a year after he bought Mxit, he left the company. “It was a mutual agreement. My partners told me to F off, and I said okay.”

---

Alan Knott-Craig’s new book, Life Lessons, How to Fail and Win, is available at bookstores country-wide.