Grab-Altimeter’s mega merger fetches top dollar at steep valuation multiples

REUTERS/Iqro Rinaldi

It’s official. Southeast Asian ride-hailing super app Grab is merging with Altimeter Capital Management’s blank cheque firm in what is touted as the world’s largest SPAC merger to date.

The real eyebrow-raiser is Grab’s valuation ask of up to $40 billion, which represents a more than doubling of its last reported valuation of $16 billion from its previous fundraise. Grab’s PIPE raising process had reportedly seen strong demand and was filled up swiftly. Still, how does Grab’s valuation compare against other internet companies?

Many factors could have contributed to the valuation, including NYSE-listed Sea Group’s phenomenal stock performance in 2020, as well as the limited number of “SPAC-able” tech unicorns from this region.

“SPACs are chasing after a relatively small number of IPO-ready tech companies in Southeast Asia. This is probably a factor why Grab’s valuation for the SPAC deal has doubled,” wrote Jianggan Li, founder and CEO of Momentum Works in a blog post on Tuesday.

SPACs listings, meanwhile, have continued to grow at a record pace. A total of $99 billion has been raised by 306 SPAC IPOs since the beginning of 2021, well surpassing the annual total raised by SPACs in 2020, according to data by SPAC Research.

What next for Grab-Altimeter?

Grab-Altimeter is likely to close the deal as soon as July, as disclosed in a Grab investor presentation deck. Few hurdles remain from here on for Grab-Altimeter, said a source privy to the de-SPAC process.

“Once a SPAC merger is publicly announced, the team would typically have about 60 days to go through a voting process to greenlight the deal and opt to receive the target company’s shares. A minimum cash threshold should also be met before the share ticker converts and the merger is complete,” added the source, an industry insider, on condition of anonymity.

“Up until that point (of voting), the share price shouldn’t go below $10. But the minute the ticker changes, it will then trade to whatever share price the market thinks, and that’s when you’ll really see the market’s true value of you,” the person added.

Upon de-SPAC, Grab’s largest shareholder SoftBank Vision Fund will hold 18.6% of Grab’s ordinary shares. Uber will hold 14.3%, Didi Chuxing holds 7.5%, Toyota Corp holds 5.9%, while Grab’s chief executive Anthony Tan will hold 2.2%.  Tan and “all directors and executive officers as a group” will hold 60.4% of the voting power.

Grab’s healthy valuations

According to Grab’s investor presentation deck, the Southeast Asian giant generated $1.6 billion in adjusted net revenue for 2020 and projects this to expand to $2.3 billion in 2021. This gives Grab a revenue-to-valuation multiple of about 24.7x for 2020 and a projected 17.2x for 2021. Sea Group by comparison holds a revenue-to-valuation multiple of 29.5x in 2020 and projected 16.6x in 2021.

Grab operates ride-hailing, delivery and financial services in Southeast Asia. Sea Group runs a highly profitable global gaming arm called Garena, as well as Shopee which is widely regarded as the number one e-commerce player in Southeast Asia. Its financial services arm, Sea Money is also the region’s fastest-growing payment platform.

Grab’s revenue multiples, in fact, appears to be on the high-end, even when compared to the wider universe of publicly listed gig-economy platforms across fintech, food delivery and ride-hailing. These include names like Mercado Libre, Uber, Lyft and PayPal.

Source: SimplyWallSt, Grab’s SEC filing.

In terms of enterprise value (EV), the deal values Grab at a post-transaction EV of $31.3 billion, or 9.6x 2022 EV/Sales, according to Grab’s forecast adjusted net revenue.

Source: Grab’s SEC filing. Adjusted net revenue is defined as gross billings minus incentives to Grab merchants and riders. Enterprise value is counted as market cap + debt – cash and cash equivalents.

Still, Grab’s valuation may not be that far off the mark, given how the company has evolved into a play on just about every consumer touchpoint.

“Grab has transformed into a super app that encompasses transactions related to transportation, eating, shopping, and digital payments. The transactions are high-frequency which tend to increase user stickiness,” analyst Arun George, who publishes on SmartKarma, wrote in a report.

“By spanning several categories, Grab has many opportunities to capture a user’s wallet spend. Grab is using its super app status to deliver high-growth with declining loss margin and cash burn. While certain management forecasts seem bullish, the overall forecasts are not outlandish.”

Bullish growth projected

Grab’s investor deck reported bullish growth numbers across its key businesses.

For instance, Grab expects both its group gross merchandise value (GMV) and adjusted net revenues to nearly triple from 2020 to 2023. Its group EBITDA remains in the negative territory of -$0.8 billion in 2020 and is projected to remain in the red before turning positive at $0.5 billion in 2023. Here are its projections:

  • GMV: $12.5b in 2020, projecting 40% CAGR growth to $34.2b in 2023
  • Adjusted net revenue: $1.6b in 2020, projecting 42% CAGR growth to $4.5b in 2023
  • EBITDA: -$0.8b in 2020, projecting $0.5 billion in 2023
  • Deliveries (GMV): $5.5b in 2020, to expand 39% CAGR to $14.7b in 2023
  • Mobility (GMV): $3.2b in 2020, to expand 25% CAGR to $7.9b in 2023
  • Financial services (TPV): $8.9b in TPV in 2020, to expand to $19.1b in 2023
    Financial services (adjusted net revenue): $342 million in 2020, to expand to $630 million in 2023

Other metrics

  • 25 million monthly transacting users (as of Dec 2020)
  • Over 5 million driver-partners (as of Dec 2020)
  • Over 2 million merchant partners (as of Dec 2020)

Risks on Grab’s horizon

Grab further outlined several risk factors including “intense competition across its segments and markets,” the impact of COVID-19, and “deficiencies in net assets and incurred net losses in each year since inception” which may lead the firm to “not be able to continue to raise sufficient capital or achieve or sustain profitability”.

Debt was also listed as an issue.

Grab pointed out that it had incurred “a significant amount of debt” which may incur additional indebtedness. “Grab’s payment obligations under such indebtedness may limit the funds available to us, and the terms of Grab’s debt agreements may restrict its flexibility in operating its business,” it wrote. Grab had last announced in February that it had secured a $2 billion loan facility in what was its largest-ever loan financing.

Grab lastly highlighted key risks in the expansion of Grab Financial which “may not ultimately be successful” and could subject Grab to additional requirements and risks.

Although Grab did manage to secure one of Singapore’s coveted digibank licences in its joint bid with Singtel, some of its fundraising and merger integration efforts are understood to have been less successful, including the poor performance of GrabInvest via the acquisition of Bento last year. Without alluding directly to Grab Financial, Grab stated that the group “may not be able to make acquisitions or investments, or successfully integrate them into Grab’s business.”

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.