COVID-marred 2020 was a difficult period for startup exits — M&As, IPOs, and secondary sales — in Southeast Asia, but the next 3-4 years look promising, according to the SE Asia Exit Landscape Report 2.0 by Golden Gate Ventures and INSEAD released on Thursday.
There were 107 exits in the region last year — a slowdown from 2019 (115), and 2018 (124) — as startups stayed venture-backed for longer amid the raging pandemic.
“Exits are very difficult to predict. Unexpected events in 2020 initially slowed down fundraising, M&A and exit activities,” observed Michael Lints, partner, Golden Gate Ventures.
M&A activity is the main driver for exits in the region, in comparison to IPOs and secondary sales. Last year recorded an estimated 45 M&A deals, with almost half of them accounted for by e-commerce, fintech, media, adtech, and social networking-related companies.
The average M&A deal size in 2020 stood at $74.7 million and Singapore topped the chart with around $3.66 billion raised, a large portion of this went to Grab ($1.6 billion). Indonesia came a close second while Vietnam, Thailand, and the Philippines are also increasingly attractive as economies mature.
One of the top acquirers in the region was Gojek. The Indonesian ride-hailing unicorn made thirteen acquisitions in 2020, including Moka, Loket, and MVCommerce.
Rival Grab made fewer acquisitions but has been an active investor, according to the report.
Strong pipeline for exits
Quoting data from Cento Ventures, the report noted that deal activity in 2020 was resilient for a pandemic year. Southeast Asian startups managed to raise $8.2 billion in funding in 2020, only a tad lower than the $8.76 billion raised in the previous year.
Deals in the $50-100 million range increased 26% from 2019, as per the same report by Cento Ventures. These rounds are typically Series B and Series C and provide a strong pipeline for potential exits over the coming 3-4 years, noted Golden Gate Ventures and INSEAD.
Encouraged by the entry of more late-stage investors (private equity), secondary buyers, SPACs and in general a welcoming public market for technology companies, the SE Asia Exit Landscape Report 2.0 forecasted that the number of exits in 2020-22 will total 468, a mark up from the 412 mentioned in the previous report.
Late-stage deals (valued over $60 million) have progressively increased by an average of 1.6x Y-o-Y from 2017 through to 2019. Fueled by various forms of growth capital (corporate investors, venture capital, and private equity funds), startups have been able to raise larger rounds faster by around 22%.
According to a recent report in The Ken, more overseas investors (e.g. Valar, a16z and Hedosophia) are making investments locally or are opening up a local office in Southeast Asia. An increase in later-stage capital will lead to startups staying private longer (as seen in other markets such as the US).
This is not necessarily a negative development for exits because late-stage companies have a higher probability of exiting than earlier-stage companies.
One of the conclusions from the previous report was that the first cohort of institutional venture funds launched in 2010 – 2012 will get to the end of their fund life from 2020 onwards. The general partners for these funds will drive exits before closing the fund.
This means a significant increase in M&A transactions and secondaries. Typically,a secondary transaction on the fund level is based on the best-performing companies in the fund’s portfolio (later-stage venture companies post-series B).
A recent secondary transaction by LGT in a 2010 vintage SEA-based fund as reported by Secondariesinvestors.com shows appetite for assets in the region and the potential for exits from 2010-12 vintage funds.
Portfolios with a significant percentage of late-stage companies will increasingly become targets for secondary buyers, increasing the number of exits in Southeast Asia. The positive sentiment around the Southeast Asian tech ecosystem also points to a positive year for acquisitions in 2021.
The rise of SPACs
The astronomical rise of SPACs has increased interest in Southeast Asia’s technology startups. The New York Stock Exchange has listed 111 SPACs in 2021 so far, including several focused on Southeast Asia.
Between 2020 and 2021, capital raised by Southeast Asia-focused SPACs climbed from $1.52 billion to $3.55 billion. However, there is no guarantee of successful mergers between the target companies and the SPACs.
A number of companies from Vietnam, Indonesia, and Singapore are closely exploring a listing through the SPAC route.
As a result, the public markets will look at Southeast Asian SPAC mergers with interest.
SE Asian unicorns leveraging public markets
Private companies like Grab, and Gojek have made a number of acquisitions, and Golden Gate Ventures expects an increase in this trend after these unicorns are publicly listed. The stock markets provide a pool of liquidity, which can be leveraged to finance acquisitions.
2021 is seeing a rebound in larger acquisitions, said the Southeast Asia Exit Landscape Report 2.0.
The largest influence of exits from 2021 onwards is continued interest in the region from institutional capital, pipeline of growth deals, the influence of SPACs on the potential for technology startups to exit, and upcoming listed technology companies expanding their reach through acquisitions.