Southeast Asia’s IPO-ready unicorns set to amp up dealmaking pace

Photo by Wilmer Martinez on Unsplash

Mergers and acquisitions (M&A) and investments by Southeast Asia’s unicorns – privately held companies that are valued at $1 billion or more – are likely to pick up pace as they inch closer to a public listing overseas and closer home.

These companies are already among the most active dealmakers in the region, having deployed a sizable largesse from private investors to buy their competitors and turbocharge their expansion.

Southeast Asia’s unicorns inked at least 39 deals — these comprise 17 acquisitions and 22 investments — over the last 24 months, according to data compiled by DealStreetAsia. The top sectors for deals were fintech, especially digital payments, and online groceries.

Some of the recent deals include Grab’s purchase of a 4% stake in Emtek valued at 4 trillion rupiah ($247 million); VNG Corporation’s $6 million investment in gifting platform Got It; and Gojek’s acquisition of a 4.76% stake in Lippo Group’s retail unit PT Matahari Putra Prima Tbk for 144.85 billion rupiah ($10.2 million).

Note: This list does not include all investments made by the venture capital arms of some of these unicorns. Sources: Company announcements, media reports, Crunchbase

Fuelling growth

Singapore-headquartered Grab, which is set to list in the US via a merger with blank-cheque company Altimeter Growth Corp by the end of this year, has about $5.5 billion in cash on its balance sheet. It also closed a $2 billion senior secured term loan facility in February. A listing on the Nasdaq would provide it with another $4.5 billion in cash.

Meanwhile, GoTo, the entity formed after the merger of Indonesian unicorns Gojek and Tokopedia, could raise as much as $2 billion when it goes public, according to a Reuters report citing sources. Other unicorns that could list soon, giving them the opportunity to boost their cash reserves, include Traveloka, Bukalapak, and Trax.

“When the market is intensifying, [companies] cannot rely on organic growth anymore,” said Alpha JWC Ventures co-founder and general partner Jefrey Joe, who thinks that the unicorns will look at startups serving second-tier cities. “If the number three players are starting to buy companies right and left to build their own ecosystem, the number one player will have little choice but to follow.”

It is a win-win situation for the Southeast Asian ecosystem. For smaller startups, it makes little sense to exit via an IPO – unless they are on track to becoming unicorns themselves – as listings require a minimum market capitalisation and entail expenses and fees. For most, the path to liquidity lies in a trade sale.

“The pandemic has acted in a kind of Darwinian way,” said Euan Rellie, co-founder and managing partner at Asia-focused investment bank BDA Partners. “The best companies have thrived and grown market share through the pandemic, and the weaker guys have fallen by the wayside. [The] bigger, better capitalised buyers are buying out… struggling underperforming players.”

Buyers will take advantage of the availability of cheap money – the “best pre-condition for M&A activity” – to borrow and invest in growth, Rellie added.

These unicorns may also need to step up acquisitions to raise their profiles, especially if they plan to list in the US where they are still relatively unknown.

“A unicorn still needs to resonate with international investors based on size, growth profile, sector and business model. We may see further consolidation to optimise a unicorn’s equity story ahead of listing,” an investment banker at a global bank, who did not want to be named, said.

Fintech, grocery delivery in focus

The region’s largest tech companies, including decacorns Grab and GoTo, and their NYSE-listed rival Sea Ltd, are ramping up their fintech play to cater to a large unbanked and underserved base of more than 290 million people. These companies have expanded their portfolios to include digital payments, lending, insurance and wealth management platforms.

Some of the notable deals Grab has done in the space include its acquisition of Singapore-based robo-advisor Bento this year, and an investment in Indonesian state-owned e-wallet LinkAja. It also picked up a stake in Indonesian conglomerate Emtek in April this year in what is seen as a precursor to a deal in the payments space. According to multiple sources, Emtek is interested in buying Tokopedia’s stake in Indonesian payments firm OVO, which is partly owned by Grab.

Rival Gojek also bought a stake in LinkAja in March this year as well as Indonesian lender Bank Jago. In 2020, it acquired mobile point-of-sale provider Moka and Vietnamese payment startup WePay. Sea Ltd, meanwhile, acquired Bank BKE at the start of the year and renamed it Seabank. Traveloka is also reportedly on the lookout for a local bank in Indonesia.

These tech giants are purchasing stakes in or buying Indonesian lenders most obviously to secure a banking licence in the country, said Angus Mackintosh, founder of CrossASEAN Research and an Insight Provider at Smartkarma. But it also allows them to acquire the talent needed to navigate the complex banking system instead of figuring it out from scratch.

Going into fintech, which is more profitable than ride-hailing and food delivery, also makes sense as these giants already have a huge customer base, said Mackintosh. For instance, Tokopedia has over 11 million merchants, and Gojek has 2 million drivers. “They are captive depositors. If they can convince their customers to transfer their balances on [the digital wallet] into the bank, they have a deposit base [and] because the customers themselves are conducting business through the platforms, they have the data to show…how well the small businesses are doing.”

With the deposits and data, the two companies can offer the likes of loans, insurance and investment products to a large captive user base.

Investing in digital payments, which many of the unicorns have done, is just the start, he added. E-wallets by themselves are not profitable, but they build trust among users. People have become accustomed to storing their money virtually without worrying that the e-wallet will shut down –  because it is backed or owned by a tech giant – and this trust can extend to using digital banking and other new services.

Grocery delivery is another attractive sector. Mackintosh pointed out Gojek’s stake in Lippo Group’s Matahari Putra Prima Tbk, which operates more than 200 retail stores and groceries across Indonesia, including its largest brand Hypermart. In May this year, Alibaba bought a stake in Vietnamese conglomerate Masan Group’s retail arm The CrownX. The deal will see The CrownX partner with Alibaba-owned Southeast Asian e-commerce platform Lazada.

“It is quite an under-penetrated area. Look at how successful it has been in China and other more developed markets,” Mackintosh said, citing Amazon’s purchase of Whole Foods. “They are replicating models which have been developed in other countries.”

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.