M&A in Southeast Asia’s tech sector: What’s driving deals?

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When a door closes, you can find a window to open. So after merger talks between Gojek and Grab collapsed last December, Southeast Asia’s ‘super app’ giants didn’t take long to look for other opportunities to better compete in the region.

Grab has since merged with Nasdaq-listed special-purpose acquisition company (SPAC) Altimeter Growth Corp at a $40 billion valuation. At the same time, Gojek has combined with e-commerce startup Tokopedia to create Indonesia’s largest tech group valued at $18 billion.

Grab’s SPAC merger and other announced deals would help push M&A deal volumes in Southeast Asia’s tech sector to a record $75 billion. In the first half of this year, tech sector dealmaking in the region had already hit $19 billion, the best start to a year.

In this article, we take a look at the two deals that will reshape Southeast Asia’s tech landscape and the impetus behind them.

Grab’s ambitions

On 2 December 2021, Grab made its Nasdaq trading debut after merging with USA-based blank-check firm Altimeter Growth Corp in an SPAC deal valued at $40 billion. Grab raised $4.5 billion from the deal, making this the largest IPO negotiated by a Southeast Asian company in the USA’s history.

Co-founded by Anthony Tan and Tan Hooi Ling in Malaysia almost a decade ago as a taxi-booking app, Singapore-based Grab has grown to be a mobility, delivery and digital payments behemoth in a region with more than 400 million internet users.

Before getting to where it is today, Grab went through a bruising battle with Uber before Uber agreed in 2018 to sell its Southeast Asian business to the regional player in exchange for a 27.5% stake. It was a turning point. By the fourth quarter of 2019, Grab’s EBITDA for the transport segment turned positive.

Yet, Grab isn’t profitable as it has also been investing in its delivery and payments segments. With its ride-hailing business hurt by the pandemic, Grab reported a net loss of $2.7 billion and net revenues of $1.6 billion last year.

But it is making rapid progress in its path to profitability. On an EBITDA basis, it lost $800 million last year but saw a narrower $600 million loss this year. Also, it expects to be positive by 2023, with its deliveries segment projected to be EBITDA profitable as early as this year, driven by greater demand for food delivery amid the pandemic.

Tan, Grab’s CEO, noted that there is “massive” room for growth in Southeast Asia, which will remain the company’s focus. 

He said the company would use IPO proceeds to invest in maps and other technology to “build the lowest cost and efficient delivery network” and to “revolutionise mobile payments, financial services and digital banking”.

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GoTo’s plans

The merger of Gojek and Tokopedia isn’t shaking up Indonesia’s business landscape as much as a Gojek-Grab union would have. The two Indonesian startups have limited business overlaps and continue to operate as separate entities under the new holding company, GoTo. They mainly overlap in payments – Tokopedia is a major shareholder in OVO, while Gojek operates GoPay. They are two of the biggest digital payments services in Southeast Asia’s largest economy.

“Gojek drivers will deliver even more Tokopedia packages, merchant partners of all sizes will benefit from strengthened business solutions, and we will use our combined scale to increase financial inclusion in an emerging region with untapped growth potential,” Andre Soelistyo, CEO of GoTo, said of the merger.

Similar to Grab, GoTo plans to go public within the year. It is eyeing a dual-listing in Indonesia and the US, where it could follow the SPAC route. GoTo president Patrick Cao said that IPO proceeds would be used “to invest further into serving our customers and expansion”. According to Bloomberg, GoTo is also in discussions with investors to raise $1 billion to $2 billion ahead of the listings.

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Intense competition

Grab and GoTo need to raise funds to be strong enough to counter competitors. The biggest is Singapore-based Sea, the region’s biggest tech company by market capitalisation, although it is still losing money in its struggle for market share. Its businesses span online gaming, e-commerce, delivery and digital payments in Southeast Asia and Taiwan, and more recently, Latin America.

In Indonesia, Sea has launched food delivery, challenging Gojek and Grab, and has acquired Bank BKE. Its e-commerce platform, Shopee, is in fierce competition with Tokopedia, the most visited e-commerce site in the sprawling archipelago, although Shopee dominates other big markets in Southeast Asia.

In Vietnam, Sea is officially launching ShopeeFood in August, rebranding a food delivery platform it acquired in 2017. In Singapore, both Sea and Grab are expected to launch a digital bank by next year.

An up-and-coming challenger is AirAsia, which has recently acquired Gojek’s business in Thailand. The Indonesia tech group will take a 4.76% stake in the Malaysian low-cost carrier’s ‘super app’ business in a stock swap. AirAsia is also considering listing this digital arm through a SPAC in the US to raise at least $300 million.

For its part, Gojek will prioritise investments in Singapore and Vietnam, where it can find a “path to market leadership”, Gojek CEO Kevin Aluwi said.

Grab acknowledges the threat posed by rivals in Southeast Asia. In its investor presentation, Grab said one of the risk factors it sees is “intense competition across the segments and markets it serves”.

As the battle for market dominance in the region heats up, the pressure for tech companies to merge and acquire will also intensify.

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