Tech M&A in Southeast Asia was hit hard in the first half of 2020 due to the pandemic, but much like the rest of the world, rebounded in the second half. In fact, Q3 and Q4 2020 witnessed a record number of M&A deals in the region and the 2021 outlook for Southeast Asia is positive, with expectations of an economic rebound and continued tech M&A growth.
Technology firms continued to attract a high level of investment to the region in 2020. Southeast Asian technology firms saw their values rise rapidly as the pandemic spurred greater adoption of digital solutions in business enterprises. However, Corum Vice President Mark White, a specialist in tech M&A in the Asia-Pacific region, doesn't see this necessarily translating into exits. He says, "I am firmly of the opinion that not enough Southeast Asian companies are pursuing exit opportunities responsibly. Singapore and Malaysia have a very visible Venture Capital community and I think there's a sense that the ecosystem is too focused on fundraising rather than trying to unlock value for their shareholders." But he does see change coming soon. "I think there's going to be a lot of opportunity in the next nine to twelve months for companies to pursue exits. He notes, "The challenge, however, could be in valuations. As White sees it, when Southeast Asian tech companies raise money, their investors often set a valuation that has no bearing on what the company is actually worth, leading to somewhat unrealistic expectations when considering an exit.
The region is also attracting new global interest, with an increasing number of startups and unicorns being sounded out for a special purpose acquisition company (SPAC) route, in lieu of IPOs, to go public. SPACs, also known as "blank check companies, "are targeting highly valued private companies to take public. For example, Grab, a giant food delivery, ride hauling, and digital payments company based in Indonesia, recently announced that it plans to go public by merging with a SPAC. And according to Bloomberg, Indonesia-based Traveloka, Southeast Asia's largest online airline ticketing and hotel booking services provider, may soon go public through a SPAC. These transactions highlight the continued interest in the region in B2B and B2C companies. White points out that underlying this is the growing middle class, a class that is largely mobile-centric, in countries such as Vietnam and Indonesia. "That makes Southeast Asian markets an attractive target for folks doing app-based e-commerce ventures in areas like transport or food ordering and delivery," explains White.
Although international acquisitions do take place in Southeast Asia, with China a major acquirer, most of the tech M&A deals in the region are local and take place within ASEAN countries ‒ with both acquirers and targets in Singapore, Malaysia, or Indonesia. Although regional M&A deal value dropped by 17% in 2020, experts predict an increase in M&A activity in 2021 as new opportunities emerge. For instance, recently, Gojek, another Indonesia-based ride-hailing, food delivery, and payments company, announced a merger with Indonesia's largest e-commerce company Tokopedia. The deal is valued at $18 billion, making it the country's largest deal in history.
Singapore, in particular, is a tempting target for tech M&A deals, with the island city/state increasingly seen as the tech innovation hub for the region. Singapore led the region in M&A activity in 2020 and is expected to repeat in 2021. Tech companies such as Zoom, Rakuten, Amazon, Tencent, and ByteDance have set up regional headquarters in Singapore. In a recent M&A example involving a Singaporean tech company, Fave, a Singapore fintech company, was purchased by Pine Labs, a merchant platform company based in India, for $45 million.
Venture Capital and Private Equity firms are also becoming more active in the region, with high levels of dry powder available to invest. For example, Singapore-based VC Golden Gate Ventures recently invested in Nano Technologies, a Vietnamese startup that enables workers to access their earned wages immediately through an app called VUI. And Singapore sovereign wealth fund GIC announced that it will purchase a 9% stake in Indonesian lender Bank Jago, which is set to become the first fully digital bank in the country.
There is tremendous growth potential in the region for investors. White believes, "There are enormous quantities of PE funds globally looking for placement in 2021. This is increasingly becoming focused on Asia, and I think it will present great opportunities for SEA tech companies." White adds that technology innovation across the region in areas such as AI, machine learning, IoT, logistics, and healthcare, makes the Southeast Asia market attractive for PE funds as well as strategic buyers.
This is a particularly good time to pursue tech M&A in Southeast Asia. According to White, "As much as there has been investment in tech in Southeast Asia, now is a really good time for investors, and in particular company founders, to take an opportunity to realize that value." But it needs to be done in the right way. White says, "You need to go and calibrate the market. You want to go and talk to a number of different potential acquirers. And the best way to do that is through a carefully managed process." That's where an experienced, global investment banker like Corum can help.
Corum's research report on Tech M&A in Asia is available for download at www.asiatechexits.com. To learn more about the Tech M&A Process, join Mark White at Corum's June 3 Southeast Asia Selling Up Selling Out event at www.corumgroup.com/events. Mark White can be reached at firstname.lastname@example.org.