A planned merger between venture-backed Vietnamese e-commerce companies Tiki and Sendo, one of the most anticipated transactions in the country’s fledgeling tech ecosystem, is understood to have been called off.
“Several shareholders did not agree to the [merger] terms, so the deal is now put on hold indefinitely,” a person familiar with the matter said.
One of the investors unhappy with the proposed merger terms is understood to be Chinese e-commerce major JD.com. The Beijing-headquartered online retailer now has a significant role in the decision-making process at Tiki, one of the sources said.
Another executive aware of the developments said COVID-19 was primarily responsible for the deal falling through, adding that the performance gap between both companies ‘widened’ during the crisis.
“Terms for the merger were agreed upon before the pandemic. During COVID, the merger ratio shifted significantly in favour of Tiki, but its investors felt that the deal did not make strategic sense for the company,” this executive added.
DealStreetAsia could not verify the proposed share swap ratio for the merger, but it is learnt that Tiki was worth about two-thirds of the combine.
In August 2019, Tiki had announced its shareholding structure and said that local investors collectively hold a 51.33 per cent stake. Meanwhile, the ownership by China and Hong Kong-based investors stood at 26.16 per cent.
Before the talks fell through, both companies were at an advanced stage of merger negotiations. They were even about to integrate their teams and systems, including moving Sendo staff into Tiki’s office.
The second executive quoted above said there was significant interest at the founders level at both companies to push the deal through. Still, key stakeholders in Tiki, including VNG, were of the view that the coronavirus crisis had negated the strategic advantages that the merger proposal was premised on.
Tiki and JD.com did not comment on the development. Sendo did not reply to DealStreetAsia’s queries.
The latest development comes after the Vietnam Competition and Consumer Authority (VCCA) held that the proposed merger did not fall under the prohibited deal category under local competition law.
“After the economic concentration, both companies should operate independently. As a result, the transaction will not impact the market structure. The transaction is not one of those prohibited by the 2018 Competition Law, as it does not generate a significant impact on the Vietnamese e-commerce market or [has] the possibility of doing so,” VCCA told DealStreetAsia earlier.
A merger between Tiki and Sendo was the most anticipated event in the Vietnamese startup space in 2020. As standalone players, it will be tougher for them to raise funding, given their lack of scale in comparison to the regional giants.
When DealStreetAsia first reported the proposed merger between Tiki and Sendo, the deal structure was seen as a major obstacle to the transaction, according to industry experts. Sources then said that a holding company would be established to retain and operate the two local brands.
Until recently, Tiki and Sendo did not have an investor in common. But, according to their renewed business certificates in May 2020, Tiki and Sendo now have a common investor in Cayman Island-domiciled Success Elite Holdings Limited.
Consolidation play to take on larger rivals
“The merger would turn Tiki and Sendo from rivals to businesses under the same roof,” an M&A lawyer had told DealStreetAsia earlier, implying that the Vietnamese online marketplaces will stop cannibalising each other and only focus on taking on the regional players.
According to DealStreetAsia’s estimates, Tiki has to date raised more than $190 million, while Sendo has raised at least $122 million. But that is just a small fraction of the money larger e-commerce rivals Shopee and Lazada have received from their parent groups.
Sea Limited-backed Shopee has posed a stiff competition in the local market. It is currently the most popular e-commerce app and website, according to iPrice, although it was the last to enter Vietnam amongst the four largest players.