Indonesia’s ride-hailing and payments major Gojek has appointed Goldman Sachs to advise on its merger negotiations with e-commerce unicorn Tokopedia, DealStreetAsia has learnt.
Merger discussions between the two Indonesian firms, first reported by Bloomberg on Tuesday, are seen as a precursor to a dual listing of the combined entity in the US and Indonesia.
The negotiations between Gojek, valued at $10.5 billion, and Tokopedia, valued at $7.5 billion, are understood to be in advanced stages. The companies have common investors in Google, Temasek Holdings, and Sequoia Capital India.
The Indonesian companies operate disparate businesses with the exception of payments, where Tokopedia and its affiliates own a little over 41% of fintech firm OVO, which competes with Gojek’s payments arm GoPay.
This is in contrast to Gojek’s recent talks with larger rival Grab to combine nearly similar businesses encompassing ride-hailing, payments and financial services, and food delivery. The negotiations were marked by ego wrangling—Grab and Gojek have long been each other’s fiercest competitor across multiple markets in Southeast Asia—and reportedly came undone after Grab co-founder and CEO Anthony Tan sought larger control over the combined entity.
When contacted, both Gojek and Tokopedia declined to comment on the reported development.
The SoftBank factor
SoftBank, an investor in both Grab and Tokopedia, has found itself playing a key role in negotiations with Gojek.
“SoftBank wants a deal, whether it involves Grab or Tokopedia,” an investment banking source told DealStreetAsia.
SoftBank Group chairman and CEO Masayoshi Son, who was one of the driving forces behind the Grab-Gojek negotiations, was reportedly left frustrated by Grab co-founder Tan’s reluctance to cede ground during those talks. He has given his blessing to a Tokopedia-Gojek deal, Nikkei Asia reported on Tuesday.
The Japanese group, which first invested in Tokopedia in 2013 through its venture arm, now holds its stake in the Indonesian company through the $100 billion SoftBank Vision Fund 1 (SVF1). The Vision Fund had co-led a $1.1 billion round in Tokopedia in 2018.
Mergers and acquisitions have formed a key part of the Vision Fund’s monetisation strategy. Other portfolio companies to have undergone M&A include Flipkart (sold to Walmart), OSIsoft (bought by AVEVA), Arm Holdings (acquisition announced by Nvidia) and Kabbage (bought by American Express).
More recently, it agreed to sell robot maker Boston Dynamics to Hyundai Motor Group, and said it expects more portfolio companies to list or go on sale in 2021.
SoftBank had held talks with Bridgetown Holdings, a special purpose acquisition company (SPAC) backed by Asian tycoon Richard Li and tech billionaire Peter Thiel, to sell its stake in Tokopedia, Barron’s had reported in December. The SPAC, which had raised $595 million in a US IPO in October, has been in talks with Tokopedia for a merger.
Given SoftBank’s significant stake in Grab, a Tokopedia merger with the super app’s arch-rival is hardly the ideal M&A option. But it may be a pill SoftBank would be willing to swallow.
“SoftBank is a significant shareholder in both companies, but at the end of the day, these decisions are made with the management team, board of directors as well as shareholders. There have been cases, notably in India, where SoftBank’s preferred consolidation deals did not happen,” said Jianggan Li, the founder and CEO of tech venture consultancy Momentum Works.
SVF1 recently made headlines for throwing a $200 million lifeline to construction startup Katerra to save it from bankruptcy. The latest capital injection comes on top of the nearly $2 billion SoftBank has already invested in the startup. An exit in Southeast Asia could mitigate the impact of the Katerra deal, which is reminiscent of the WeWork fiasco.
Road to IPO
Last month, Tokopedia said it hired Morgan Stanley and Citigroup as advisers for its initial public offering (IPO) and confirmed its options include taking the SPAC route for a US listing.
By joining forces with Tokopedia, Gojek can expect to expedite its access to public markets. Having an e-commerce business in its portfolio would also broaden its appeal to public market investors that have previously responded lukewarmly to the market debut of global peers such as Uber.
For Tokopedia, a merger with Gojek would help it command a higher valuation in the capital markets and pose a stronger competition to Shopee, the e-commerce arm of NYSE-listed Sea Ltd.
“The merger could potentially bring more public investors to hop on the IPO of the combined entity, not just on Wall Street, but also in Indonesia, given the benefits to both businesses and Indonesia’s digital economy,” said Insignia Ventures founding managing partner Yinglan Tan.
The combined entity spanning ride-hailing, e-commerce, payments, and food delivery could raise larger pools of capital at a faster pace in the public markets, as opposed to long-drawn fundraising from private investors.
Made for Indonesia
A Gojek-Tokopedia merger is unlikely to change market dynamics outside Indonesia. Gojek, which is present in five Southeast Asian countries, has struggled with international expansion, while Tokopedia has remained steadfastly focused on its home turf.
That said, Indonesia is the big prize in Southeast Asia. It is the region’s largest market and its digital economy is slated to touch $124 billion by 2025, according to the e-Conomy SEA 2020 report by Google, Temasek and Bain.
“[The merger] makes sense given the competitive landscape in Indonesia. The Gojek-Tokopedia merger could bring together the benefits of horizontal integration that would have otherwise been too capital-exhaustive or impractical to do on their own,” said Insignia’s Tan.
However, combining forces may not be enough to offset the headstart achieved by rivals such as Grab and Sea Ltd, feel others.
“Shopee has a very profitable gaming business and overtook Tokopedia in market share in Indonesia; while Grab has the regional leadership in food delivery and ride-hailing, and is in a better cash position compared to Gojek. By combining Gojek and Tokopedia, it does not really change the competitive dynamics in the respective markets,” said Momentum Works’s Li.
Battling Sea
Singapore-headquartered Sea, which commands a market value of $100 billion, has been aggressively expanding in Indonesia across e-commerce, payments, and food delivery sectors.
Sea’s subsidiary Shopee is currently the largest e-commerce platform in Indonesia. It ranked first in Indonesia in terms of average monthly active users and downloads in the shopping category in the third quarter, according to App Annie data.
Sea, which saw its stock jump 400% in 2020, has regularly tapped the capital markets to accelerate its market expansion. The NYSE-listed company raised at least $2.6 billion in December in an upsized share offering in the US. In comparison, Gojek took over a year to raise around $3 billion in its Series F round.
Fewer regulatory hurdles
According to Joel Shen, a technology lawyer at global law firm Withers that has previously represented Grab on several occasions, a merger between Gojek and Tokopedia is likely to face fewer regulatory hurdles than a Gojek-Grab union.
Tokopedia does not hold an e-money licence in the country, which means a Gojek-Tokopedia merger would be able to proceed without prior approval from Bank Indonesia, he added.
However, regulators could potentially be concerned about market concentration in the payments segment. Tokopedia-backed OVO and Gojek’s GoPay are the two largest digital payment service providers in the archipelago.
