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Startups

Southeast Asian unicorns' appetite for acquisitions grows

Go-Jek, Grab and Tokopedia are driving exits of regional startups

A Go-Jek logo is pictured in their office in Singapore.    © Reuters

JAKARTA -- The latest acquisitions in South and Southeast Asia - Indonesian e-commerce unicorn Tokopedia buying wedding marketplace Bridestory and Gojek doubling down on India by acquiring recruitment platform AirCTO - highlight how unicorns have emerged as the biggest drivers of exits in the region.

On Monday, Singapore’s Trax announced the acquisition of US-based rewards app Shopkick, reaffirming the buyout appetite of the region's unicorns as they seek faster growth.

The 11 unicorns in SEA are responsible for nearly 40 acquisitions -- although not all involve local startups -- and in addition, hold stakes in about a dozen new tech companies in the region. With several of the regional unicorns, including Grab and Gojek, launching their own venture arms, they are becoming firmly entrenched as both a source of funding and a potential provider of exits to early-stage venture capital investors.

Industry watchers point out that for the regional unicorns, it is highly attractive to acquire smaller startups at conservative valuations and gain access to their technology and/or talent, but it may not always yield great results for investors in these startups.

"These deals are not necessarily positive for investors as many of these startups could have scaled to become $100 million or $200 million companies over the next 3-4 years. Early investors [in the smaller startups] are often left holding a tiny fraction of shares in unicorns, as many of these deals have been share-swap and not necessarily cash payouts," explained a partner at a local VC firm, who did not want to be named.

Reports have shown that exits have been picking up pace in the last three years. Per the State of South-east Asian Tech report compiled by Monk's Hill Ventures and Singapore’s Slush, the region had seen 66 startups achieve exits as of June 2018. The figure is expected to reach almost 200 by the end of the year.

The report noted that IPOs accounted for a negligible proportion of exits as acquisitions overwhelmingly dominate the landscape. While the report did not specify the profile of acquirers over the last three years, the period coincided with a rise in acquisitions by the region’s unicorns.

Unsurprisingly, Indonesia has seen the bulk of these acquisitions, with all four unicorns engaged in buyouts.

Gojek has, by far, been the most active in this regard, acquiring as many as 12 startups since 2016. The companies acquired include local payments company MVCommerce, ticketing platform Loket and adtech firm Promogo--all bought to expand Gojek’s array of services--and Indian companies C42 Engineering, Pianta and, most recently, AirCTO, to ramp up the ride-hailing giant’s engineering capabilities.

Other unicorns to have flexed their buyout muscles include fellow Indonesian unicorns Traveloka, which last year was reported to have acquired three online travel companies, and Tokopedia, which recently announced the acquisition of Bridestory, along with children's activities marketplace Parentstory.

Singapore startups have not been far behind, with NYSE-listed Sea buying three undisclosed companies in 2017 for $19.875 million, according to an SEC filing. SoftBank-backed ride-hailing firm Grab, meanwhile, acquired payments startups Kudo and Ikaaz, in addition to picking up minority stakes in a host of companies.

New unicorns have quickly got in on the action. Singapore’s Trax acquired US-based Quri last year and China's LenzTech this year, before the latest Shopkick purchase. In Indonesia, Grab-backed Ovo recently bought local P2P lender Taralite.

Meanwhile, property startup PropertyGuru acquired Vietnam's Batdongsan.com.vn last year. It had previously bought marketing company ePropertyTrack and Indonesian firm RumahDiJual.

According to Teddy Oetomo, Chief Strategy Officer at Bukalapak, which last year sealed a deal to “acquihire” the talent at e-commerce startup Prelo, the rise in the number of acquisitions in the region coincides with more companies aspiring to become super apps, seeking to meet all the varied daily transactional needs of the user.

“The companies looking to be super apps are acquiring smaller startups because they, well, all of us, cannot be an expert in everything. The easiest way to build a new vertical is acquiring it. In addition, acquiring is faster than developing,” said Oetomo, whose company so far has mostly optimized in-house resources for new innovations, but has also set up a business development team to explore M&A opportunities.

While it was Indonesia’s self-declared super app Gojek at the forefront of acquisition activity so far, it is anticipated that more companies are set to follow its lead now and embark on an acquisition spree, with rival super app Grab possibly leading the charge.

In the past, Grab has been active in acquiring minority stakes in companies including Singapore's Ninja Van, Vietnam's Moca and Indonesia's Ovo, a strategy Gojek has also adopted with investments in several companies including Halodoc, Pathao and Pasarpolis. Both have also set up VC arms to focus on such deals.

Grab, which has so far secured $4.5 billion in an ongoing Series H round and is looking to raise another $2 billion in funding, has announced its plans to acquire or invest in at least six tech startups this year. According to our sources, one of the companies Grab has identified as a potential acquisition target is HappyFresh, in which the ride-hailing firm already owns a minority stake.

"Whether we invest or acquire will depend on many factors, including, but not limited to, the synergies a company has with Grab's ecosystem, the growth potential of the company, and the valuation of the company," Nicholas Anthony, Head of M&A and Investments at Grab, told DEALSTREETASIA.

Similarly, fellow Singapore-headquartered company Trax, which emerged as a unicorn in September last year after a $125-million funding round led by China’s Boyu Capital, has said that it aims to use its latest funding to finance two more acquisitions.

Meanwhile, Alibaba-backed e-commerce unicorn Tokopedia is learnt to be in talks to acquire multiple startups including Sayurbox, while Grab and Tokopedia-backed payments major Ovo is also said to be in the process of sealing a slew of fintech acquisitions, having held talks with companies including Bareksa and Glotech Prima Vista.

For these smaller startups on the verge of exit, the idea of exiting to, and joining, a regional giant could be an exciting prospect, or as Kudo co-founder Agung Nugroho puts it, “a Silicon Valley dream”.

Kudo was acquired by Grab in 2017 in a deal which, at the time, marked the biggest exit for an Indonesian startup, at a reported value of around $100 million.

Nugroho said exiting to Grab was not a difficult decision for Kudo, as the two companies shared the same vision of empowering micro-entrepreneurs. Furthermore, joining Grab, he said, was like being part of a titan that is looking to conquer the market.

“Within three years, we managed to sell this company to the bigger player. Hopefully, this has become some kind of light at the end of the tunnel for some VCs and entrepreneurs,” Nugroho said.

The biggest exits in the region have also involved the most valuable startup firms in SEA and China respectively.

Last year, Grab acquired Uber's Southeast Asia operations in a deal that involved the US firm picking up a 27.5 per cent stake in SEA's most valuable internet company. Uber's recent IPO filing showed that it got "Grab's Series G Preferred Stock representing a 30% equity ownership interest...", which had been diluted down to about 23.2 per cent as of December-end.

The other major regional deal involved Alibaba picking up a controlling stake for $1 billion in 2016 in Lazada, which then promptly bought online grocer RedMart in 2016. That exit, however, reportedly came at a loss for Lazada investors. Alibaba has pumped in an additional $3 billion into Lazada since then.

However, not every company has jumped at the chance of joining a “titan”.

According to a recent report, Grab had held talks with Singapore-based payments startup 2C2P Pte, but failed to seal a deal as the latter turned down preliminary offers of up to about $200 million, and instead decided to raise additional capital to keep expanding as an independent company.

Indonesia-based lending startup Kredivo claims to have received “several” acquisition offers from unicorns, which it has declined as the company prefers to stay consistent to its mission with the backing of “a strong set of investors”.

Kredivo co-founder and CEO Akshay Garg said that the trend of unicorns becoming active acquirers is positive for the ecosystem, but for founders, selling a company to a unicorn is not necessarily an achievement in itself.

“This really depends on the nature of the deal. If the startup is out of runway and has no other option to survive than to be acquired, founders don't see that as an achievement. On the other hand, if the unicorn is acquiring the startup for something valuable that the startup has built, that can be considered an achievement,” Garg said. "What is really seen as a true achievement is if the unicorn, even after the acquisition, leaves the startup and its team to keep on executing its product roadmap and vision," he added.

According to Willson Cuaca, managing partner of early-stage investor East Ventures, it is these new startups that will ultimately determine whether or not the region will see more acquisition activities by unicorns going forward.

“I really think it depends on value creation of the new startups,” said Cuaca, whose firm is a backer of Tokopedia and Traveloka. “New startups by design is a disruptive force, you may call it out-of-the-box, outside-in or whatever, but the key is they re-think how certain process/businesses should re-design and create new value.”

“Based on today’s velocity of value creation, I believe in the next five years we will still see lots of disruptive forces, and for bigger companies wanting to aggressively compete or move faster, an acquisition is one means to achieve that,” Cuaca added.

DealStreetAsia is a financial news site based in Singapore focused on corporate investment activity in Southeast Asia and India. Nikkei recently announced the acquisition of a majority stake in the company.

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