Carsome’s acquisition of iCar Asia still scratching tip of SE Asia’s automotive iceberg

Carsome's team.

2021 has been a significant year for Southeast Asia’s car marketplace sector. Two unicorns are fast-emerging – SoftBank Vision Fund-backed Carro and Malaysian-headquartered Carsome with the latter announcing a $200-million landmark deal to buy out ASX-listed iCar Asia yesterday.

If shareholders approve the transaction, the merger will undoubtedly turn Carsome Group into a formidable player to watch in this region.

According to a joint statement by Carsome and iCar Asia’s largest shareholder, Catcha Group, the combined entity will generate annualised revenues of $1 billion this year across Malaysia, Indonesia, Thailand and Singapore. Some 100,000 cars will be transacted annually, covering 460,000 live partner listings and 13,000 car dealers on its network.

The Carsome-iCar Asia deal is understood to be negotiated in tandem with Carsome’s ongoing pre-IPO round that DealStreetAsia first reported to be at least $200 million. A filing to the Australian Exchange (ASX) yesterday also indicates the allotment of Preference D2 shares – in reference to Carsome’s latest fundraising round – which will be issued to Catcha Group, subject to shareholder approval.

The combined entity of Carsome Group is expected to fetch a valuation of $1.5-1.8 billion, said one source aware of the discussions. The fundraising process however is still ongoing, with the cap table not yet finalised, although the Malaysian-headquartered firm has seen healthy interest from global investors. A separate source told DealStreetAsia that Temasek Holdings has submitted interest in the deal, but this could not be independently verified.

According to Catcha Group’s Patrick Grove, the transaction will take another 3-4 months to round up shareholder approval, after which iCar Asia will eventually be delisted from the ASX and merged with Carsome. The entire merger process will likely be completed by the end of 2021.

Industry experts have noted the complementarities of the two Southeast Asian businesses. “iCar Asia generates traffic, while Carsome over the past year has built a B2C business in addition to its C2B auction business, so it is actually a good match,” said Jianggan Li, founder and CEO of Momentum Works.

Carsome was also the favoured choice over Autohome, an NYSE-listed online car sales platform unicorn based in China. Autohome first offered a takeover proposal for iCar Asia in October 2020 at the price of A$0.50 per share.

One source told DealStreetAsia that the deal stalled due to overall skittishness on Autohome’s part, against a wider backdrop of growing uneasiness in Australia over Chinese buyouts. Chinese-Australian trade relations have since worsened over the last year, with China slapping severe “anti-dumping” restrictions across a host of Australian products, as well as a hefty 107-200% tariff on Australian wine in November last year.

Carsome’s offer for iCar Asia is now going at A$0.55 per share, but more significantly, it’s also a merger that is perceived to be a combination of two inherently Southeast Asian businesses with a long-term vision for growth. “To be honest, we were slightly concerned that Autohome was going to come in, buy us out and dump us,” said a source in reference to iCar Asia. An official statement submitted by iCar Asia to ASX state that discussions with Autohome are still ongoing.

The size of these fundraising and merger rounds may be large, but industry experts point out that it’s still early days for Southeast Asia’s automotive sector. The Google, Temasek and Bain SEA eConomy 2020 Report expects Southeast Asia’s transport sector GMV to jump almost 4x to $19 billion by 2025.

Used car sales are also topping analyst expectations as COVID-19 veers car buyers towards more cost-friendly options. Research by Momentum Works also shows that car ownership rates in Southeast Asia are still low. Southeast Asia had 86 cars for every 1,000 people in 2019, compared to 138 in China, and 618 in the US over the same period. This has been growing steadily since.

“The used car market potential in Southeast Asia is big. We estimated 6 million cars sold in 2019 with a total value of $55 billion. We believe the number will be higher in 2020 with people selling their cars and buying fewer new cars,” said Momentum Work’s Li.

“So far all the transactional platforms collectively occupy a lower single digit of the whole market, indicating plenty of room for growth,” he continued.

Successful models overseas may further give observers a sense of what to expect from Southeast Asian car sales platforms here. Carsome is likely to be taking a cue from China’s more internet savvy car sales platforms, with the impending merger with iCar Asia to likely see the group enter the content sector, said a source. Plans are underway to launch an app that will allow users to share car buyer reviews, video live-streaming, and host influencer content around their cars.

“This is the first step toward consolidation to form the largest digital automotive group in terms of revenue, user base, largest live listing, and the best end-to-end fulfilment capability in the region,” said Carsome’s chief executive officer, Eric Cheng in a press statement yesterday.

Carsome has also accelerated its IPO preparations.

DealStreetAsia reported last month that the Malaysian firm is actively weighing its options for a US public listing in 2022, either via a special purpose acquisition company (SPAC) or a traditional IPO. The firm is understood to be ahead of its own timeline in terms of revenue and company readiness, and as such, is moving ahead with plans to list next year.

Many of its overseas peers have been active on this front as well, all substantially larger than Carsome – for now.

US-based Carvana is listed on the NYSE at a $26 billion market cap. UK-based Cazoo agreed in March to pursue a SPAC merger with AJAX that will value the firm at $7 billion, with investors including Altimeter. In China, SoftBank Vision Fund invested $1.5 billion in Beijing’s Chehaoduo last month.

Aastha Maheshwari contributed to this story.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.