Lesaka Technologies has a problem that’s becoming familiar across African fintech: it can buy revenue, but it can’t buy margins.

The Nasdaq-listed payments company, formerly known as Net1, has completed two acquisitions in the past 15 months and is waiting on regulatory approval for a third. The deals have added customers, transaction volumes, and product lines. What they haven’t added is meaningful profit.

Financial results for the six months ending December 2025 reveal the challenge. Despite absorbing Adumo — a payments processor acquired for $73m in equity — and Recharger, a prepaid electricity metering business, Lesaka’s operating margin stands at 0.7%. Six months earlier, before the deals closed, it was 0.1%.

The company generated $2.3m in operating income on $350m in revenue. Strip out depreciation and one-off costs, and adjusted EBITDA reached $32.9m — a 59% increase year-on-year. But that improvement reflects accounting treatment more than operational transformation. The actual cash position tells a different story: Lesaka consumed $2.0m in operating cash flow during the period, largely due to working capital requirements for its expanding lending operations.

The Adumo equation

Adumo was supposed to accelerate Lesaka’s merchant services business. The deal closed on 1 October 2024, bringing aboard a competitor with established relationships in South Africa’s formal and informal retail sectors.

Lesaka issued 17.3m shares — roughly 16% dilution — as consideration. It also absorbed $8.3m in existing Adumo debt, which it immediately repaid, and recorded a $7.6m non-controlling interest for minority shareholders who retained stakes.

The Merchant division, where Adumo now operates, generated $258.9m in revenue during the six-month period — down 4% in rand terms compared to the prior year, when Adumo contributed only three months of results. Segment-adjusted EBITDA was $18.9m, up 8% in dollar terms but just 5% in rand.

Management attributes the revenue decline to lower prepaid airtime sales, a legacy low-margin business the company is trying to phase out. But the modest EBITDA improvement — given the incremental three months of Adumo contribution — suggests the acquisition hasn’t delivered the cost synergies or pricing power that typically justify horizontal consolidation.

Lesaka’s merchant EBITDA margin improved from 6.5% to 7.3% year-on-year. That 0.8 percentage point gain, after spending $73m in equity and assuming $8.3m in liabilities, represents a return that would be difficult to defend in most M&A frameworks.

The company disclosed ZAR 7.4m ($0.4m) in retrenchment costs for the Merchant division during the period — evidence that workforce integration is ongoing. It’s also midway through a brand consolidation exercise, retiring the Adumo name and folding operations under the Lesaka master brand by February 2027.

What works: Recharger’s niche

Recharger, acquired in March 2025, has been the clearer success. The prepaid electricity metering business now sits within Lesaka’s Enterprise division, which posted $29.6m in revenue for the half-year — up 42% — and delivered $2.7m in adjusted EBITDA compared to a $0.03m loss the prior year.

Recharger operates 357,300 active prepaid meters, primarily in multi-tenant residential buildings where landlords install the meters and tenants purchase electricity vouchers. The model generates recurring commission revenue on every top-up transaction, with limited customer acquisition cost once a meter is installed.

Transaction volumes reached ZAR 465m ($27m) in the second quarter alone. The business benefits from structural tailwinds: South Africa’s electricity crisis has made prepaid metering attractive to landlords seeking to avoid billing disputes, and the shift to cost-reflective electricity pricing has increased the value of transactions flowing through the platform.

Lesaka hasn’t disclosed what it paid for Recharger, but the business is now contributing positive cash flow and requires minimal ongoing capex beyond meter installations, which are typically funded by landlords.

The contrast with Adumo is instructive. Recharger operates in a defined niche with high switching costs and recurring revenue. Adumo competes in merchant acquiring — a commoditised market with multiple providers, margin pressure from card schemes, and ongoing technology investment requirements.

The Bank Zero impasse

Lesaka’s third acquisition remains stuck. The company signed a transaction implementation agreement for Bank Zero, a digital mutual bank, on 26 June 2025. Seven months later, the deal hasn’t closed.

The purchase price includes ZAR 100m ($6m) in cash plus performance-linked consideration tied to future metrics. Lesaka has received approval from South Africa’s Competition Commission but is still waiting on the Prudential Authority and the Financial Surveillance Department of the South African Reserve Bank.

Mutual banks occupy an unusual position in South African banking regulation. Unlike commercial banks, which are owned by shareholders, mutual banks are owned by depositors. That structure complicates change-of-control transactions because it requires converting depositor ownership into a shareholding model — a process that involves legal restructuring and regulatory oversight.

Bank Zero was founded in 2018 as a mobile-first challenger targeting younger consumers excluded from traditional banking. But it remains small. Lesaka hasn’t disclosed customer numbers or deposit balances, and Bank Zero’s financial statements aren’t publicly available.

The strategic rationale appears to centre on licensing and infrastructure. Acquiring Bank Zero would give Lesaka a full banking licence, allowing it to offer current accounts, lending, and other products under direct regulatory supervision rather than through partnerships. The company already operates a large-scale payments business and has been expanding into consumer lending and insurance; a banking licence would consolidate those activities under one regulated entity.

But the approval timeline has stretched beyond initial expectations. Prudential reviews for bank acquisitions typically examine capital adequacy, governance structures, and the financial strength of incoming shareholders. Lesaka’s distributed operations across South Africa, Botswana, and Namibia — combined with its Nasdaq listing and history of internal control issues — likely add complexity to the review process.

The company has spent $0.1m on Bank Zero transaction costs during the six-month period and has accrued another $0.3m for future expenses. Management expects to incur an additional $0.2m before closing — if closing occurs.

The consolidation thesis under pressure

Lesaka’s M&A activity reflects a broader pattern in African fintech. As mobile money and instant payments erode traditional card-acquiring margins, payments companies are pursuing horizontal integration to achieve scale, then pivoting into adjacent products — lending, insurance, utilities — that offer higher returns.

The logic rests on two assumptions: first, that consolidation will reduce costs through shared infrastructure and back-office elimination; second, that a larger customer base will improve cross-sell economics for higher-margin products.

Lesaka’s results challenge both assumptions. Despite absorbing Adumo, the Merchant division’s cost structure hasn’t meaningfully improved. Selling, general, and administrative expenses across the group rose 27% to $80m, with management citing “the inclusion of Adumo” alongside inflation and higher headcount.

Depreciation and amortisation jumped 83% to $26.5m, driven by intangible assets from the acquisitions and a decision to shorten the useful life of certain brand assets — an accounting change that accelerated amortisation by $6.3m during the period. These costs will persist for several years, offsetting any operational efficiencies.

The cross-sell thesis is working better, but not through acquisition. Lesaka’s Consumer division — which wasn’t involved in the recent M&A — posted the strongest results. Revenue rose 45% to $63.7m, and adjusted EBITDA increased 104% to $17.8m, driven by lending and insurance products sold to existing transactional account holders.

The Consumer business now serves 2.0m active customers, up 21% year-on-year, with product penetration rates improving across the board. The lending book has grown to ZAR 1.5bn ($89m) in gross receivables, more than doubling from ZAR 709m a year earlier. Insurance policies in force reached 641,000, up 29%.

Control weaknesses and integration risks

Lesaka disclosed material weaknesses in its internal controls over financial reporting in its prior fiscal year. Those weaknesses remain unresolved as of December 2025.

The issues span multiple areas: insufficient risk assessment procedures, inadequate IT general controls, weaknesses in business combination accounting, and revenue recognition errors. The company has implemented a remediation plan that includes additional hiring, enhanced training, and closer collaboration with external auditors, but management acknowledges the process is ongoing.

The control environment matters for M&A execution. One weakness specifically cited by management relates to “insufficient risk assessments and ineffective design and implementation of controls over the purchase price allocation of the Adumo and Recharger acquisitions.”

Purchase price allocation determines how much of an acquisition’s cost gets assigned to tangible assets, intangible assets, and goodwill. Errors in that allocation can lead to misstated depreciation and amortisation, which in turn affect reported profitability and tax positions.

Lesaka recorded $211.9m in goodwill as of December 2025, up from $199.4m six months earlier. It also carries $131.7m in net intangible assets, including $96.3m in software and technology, $34.4m in customer relationships, and $1.0m in brands and trademarks. A significant portion of those intangibles stems from Adumo and Recharger.

The company tests goodwill for impairment annually. If the acquired businesses underperform, those tests could result in write-downs that would crystallise losses from the deals.

What the data reveals

Six months isn’t enough time to judge an acquisition strategy definitively. Integration takes quarters, not weeks, and cost synergies typically materialise 12 to 18 months after closing.

But the early data suggests Lesaka’s consolidation bet faces structural headwinds that time alone won’t solve.

Adumo has added scale without adding profitability. The Merchant division processed more transactions and served more customers, but margin expansion has been negligible. The business still competes in a crowded market where pricing power is limited and technology requirements are high.

Recharger, by contrast, occupies a defensible niche with recurring revenue and low customer acquisition costs. But the addressable market is constrained. There are only so many multi-tenant buildings in South African metros, and electrification rates outside urban areas remain low.

Bank Zero, if it closes, would provide strategic infrastructure but also regulatory complexity and capital requirements. Digital banks require ongoing investment in product development and customer acquisition, and profitability timelines for challenger banks — even in developed markets — typically extend three to five years from launch.

The larger question is whether horizontal consolidation makes sense in a market where the core payments business is commoditising. Lesaka is effectively using M&A to assemble a portfolio of adjacencies — lending, insurance, utilities, banking — rather than to dominate a single category.

That approach can work if the customer base is large enough and sticky enough to support cross-sell at scale. Lesaka’s Consumer division demonstrates that dynamic: 2.0m active customers with improving product penetration and rising EBITDA margins.

But the Consumer business wasn’t built through acquisition. It was built through patient organic expansion into products adjacent to its core payments rails.

The Merchant division, by contrast, is trying to buy its way to relevance in a market that may not reward consolidation. Lesaka now has more point-of-sale devices, more merchant relationships, and more transaction volume. What it doesn’t have — at least not yet — is a margin structure that justifies the capital deployed.

The company’s next results, due in May 2026, will reveal whether the operational integration of Adumo begins to close that gap, or whether the early pattern persists: revenue growth without profit improvement, scale without pricing power, and M&A that adds complexity faster than it adds value.

Disclosure: Financial data is sourced from Lesaka’s SEC filings for the quarter ended 31 December 2025. Amounts are reported in US dollars unless otherwise stated; comparisons in South African rand use average exchange rates disclosed in company filings.