Photo by Sebastian Pena Lambarri on Unsplash (Climbing up Himalayas)

Photo by Sebastian Pena Lambarri on Unsplash (Climbing up Himalayas)

4 Big Questions on Southeast Asia Exits in 202110 min read

some questions to think about as progress is made in tech giants hiking up the exit path and more startup-friendly routes being opened for Southeast Asia

Over the past few weeks, we have been getting questions about Southeast Asia’s exit landscape this 2021. Given that this is a still developing, but an important theme for ASEANnovation this year, we identified the four big questions that we’ve been asked when it comes exits in the region, and that we believe are worth following as 2021 goes on:

(1) How will the IPO boom in the US and IPO prospects of regional tech unicorns impact the exit decisions of tech companies in the region? Will more tech companies in Southeast Asia seek to go public this year?

TLDR: So while going public will definitely take up more space in the exit discussion for any viable startup given new alternatives like SPACs, it is unlikely that they will 100% translate into execution this year, much less success cases. More than the possibility of an increasing number of IPO exits from Southeast Asia, the exits among the region’s tech giants speaks to another narrative: greater consolidation across ecommerce and financial services in Southeast Asia.

(2) What do SPACs mean for Southeast Asia’s exit landscape? 

TLDR: SPACs present a highly appealing alternative to the traditional IPO route for Southeast Asia’s tech startups, but whether this will be truly advantageous for the continued rapid growth of a tech company in the long run remains to be seen.

(3) Will M&As continue to dominate the exit landscape? 

TLDR: M&As will continue to dominate as more strategic buyers knock on the doors of Southeast Asia’s industries. Similar to the developing IPO plans of some regional tech unicorns, strategic investors flocking to Southeast Asia points towards greater consolidation in hot verticals in the region.

(4) What are your thoughts on Tokopedia’s exit opportunities (IPO and merger with Gojek)? 

TLDR: Given the ecommerce and online marketplace boost in the public markets, a Tokopedia IPO could be the tool to amplify the company’s capital and keep up with burgeoning rivals like Shopee. Meanwhile, the merger with Gojek could be an important horizontal consolidation for both parties and could be leveraged before (or even after) an IPO for the ecommerce company. Tokopedia’s exit situation in Southeast Asia is unique compared to its peers and will be important to follow given the optionality it has, despite having a smaller valuation and fundraise-to-date versus its peers or rivals.

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More than the responses to these questions, it will be important to follow these narratives throughout 2021. The reality is that because these are still largely discussions and haven’t fully developed into concrete deals (at least in public knowledge), there are still many lingering questions about the potential outcomes of major exits in the region. As companies trek the uphill path to exit in Southeast Asia, the most important questions are the ones that concern what happens once they reach the peak and what it means for others making their way to the top. 

Our thoughts on exits in the region have been covered on Financial Times, the Ken, and DealstreetAsia

(1) Will more Southeast Asia startups seek to go public this year?

Talks have reemerged over the past few months about exits for the heavyweights in Southeast Asia’s late-2010s generation of unicorns amidst pressures from late-stage investors like Softbank to generate substantial liquidity events, the presence of IPO alternatives like SPACs, and the renewed resolve from local exchanges like IDX to push for more tech exits.

These talks also align with market forces favoring exits and IPOs in particular — the decoupling of “wall street” (public market sentiments) from “main street” (harsh economic outlook amidst COVID19) continuing into 2021, excess liquidity finding opportunity in emerging markets like those in Southeast Asia, and the IPO boom over the past year in the US. 

Four exits on Southeast Asia’s table have dominated the headlines — Grab-Gojek merger, Traveloka IPO, Tokopedia IPO, and Tokopedia-Gojek merger (the latter two we’ve shared our thoughts with FT and DealstreetAsia respectively). 

These companies have been staying private for some time since reaching unicorn-hood, raising more and more megarounds to keep up with the burn of expansion, acquire adjacent businesses, compete with rivals in the region, and more recently, stave off the losses brought about by COVID19. 

All this in a region where IPOs are few and far between, but Southeast Asia has reached a point where growth-stage investors that have been funneling big tickets into this generation of unicorns are now itching for an exit. All cards that have been on the back burner are now being explored on the table. 

An IPO or merger from any of these companies will also be an important reference for future tech exits, especially those coming from Indonesia. To what degree these events will shift the region’s tech battleground remains to be seen, but it is clear that financial services continue to play a bigger role in the growth of these companies. It will be important to revisit this question in the context of the public market’s sentiments towards the region once an IPO actually happens. 

So while going public will definitely take up more space in the exit discussion for any viable startup, it is unlikely that they will 100% translate into execution, much less success cases. After all, even with additional avenues to go public, the rigor and demands of raising capital from public investors is an entirely different ball game from raising rounds of private money as a fast-growing tech startup. 

More than the possibility of an increasing number of IPO exits from Southeast Asia, the exits among the region’s tech giants speaks to another narrative: greater consolidation across ecommerce and financial services in Southeast Asia. 

(2) What do SPACs mean for Southeast Asia’s exit landscape?

It’s important at this point for the ecosystem to follow the process and the IPO journey of these companies. The outcome will become an important benchmark and the process an important reference playbook for companies in the region to follow. 

 SPACs by nature are advantageous for companies in Southeast Asia because of the heavy costs and restrictions that go along with following the traditional IPO route. Once a successful case is proven, we can expect more to follow, especially among Toko’s and Traveloka’s generation of companies that have amassed mega-rounds of funding. 

If going the traditional IPO route is like climbing the summit of Mt. Everest on your own, going public via SPAC is like hiring a company of sherpas (who have already reached the summit countless times) to carry you up, halving the time it takes to reach the summit. The returns of reaching the top on your own can vary wildly (do-or-die) while reaching the top ferried by sherpas is safer and faster but could be less rewarding. 

For the fast-growing tech company that will find it difficult to transition from the private to public markets, the SPAC route offers transparency, structure, and expertise that public investors are already with, while still affording the speed that tech startups and tech investors by nature operate under. This speed and safety is why it has garnered record popularity over the past few years, especially in the US.

Among Southeast Asia’s tech companies, the IPO experience has yet to be replicated (Sea being the only one), much needed IPO expertise is largely unavailable, and the physical distance from Wall Street in COVID makes it difficult to do IPO roadshows. The SPAC route could make for a smoother and shorter ride for Tokopedia, and if proven to be successful, could pave a new road for more tech giants in Southeast Asia to consider to exit. On a side note, it will also be interesting to see how SPACs will impact the valuations at which late stage investors participate in rounds. 

(3) Will M&As continue to dominate the exit landscape?

Same as how some tech startups saw massive growth in the pandemic and others did not — opportunity does not mean results or change. While the doors to the public markets have increased, they still remain limited, and for most startups, especially those that are unable to establish country or regional leadership, M&As will likely be the path to exit. When it comes to M&As, the doors continually appear with more strategic buyers and CVCs setting up shop in the region. Even if SPACs become more available in Southeast Asia, there may be one to two IPOs every two to three years given the rate of growth of companies in the region, but otherwise M&As will remain the go-to exit path for most tech companies here.  

The dominance of M&As in the region is compounded by the fact that there are also more strategic buyers setting up shop here. If tech companies like Stripe and Bytedance find it difficult to expand themselves across markets due to localization challenges, they will be incentivized to buy or merge with local champions.   

When it comes to looking at exits from an early-stage startup’s perspective, it’s much more productive to think of one’s company like Noah’s Ark. If you focus on building a great company, then the exits will come. At the same time, once they do come, it’s important to have a good sense of what the company needs to reach the next stage of growth rather than blindly heading for what looks good on paper. 

(4) What are your thoughts on Tokopedia’s exit opportunities (IPO and merger with Gojek)?

It’s best to strike while the iron is hot. The ecommerce boom induced by COVID19, the big-ticket funding-fuelled growth over the last three years, and the slew of successful IPOs among tech marketplaces this year put Tokopedia in a position that is attractive to public investors. Sea Group rode the rising tide to great effect, Tokopedia has the opportunity to do the same, but from a slightly different angle. 

While there’s plenty of motivation in Tokopedia’s recent history to go for an IPO, Tokopedia shareholders should also consider what Tokopedia’s future plans are for ecommerce in Indonesia. Specifically, two questions — what will the capital raised be fuelling? and is Tokopedia well-equipped in terms of leadership to execute on growth opportunities afforded by an IPO? Clear growth trajectory and leadership are two key factors that companies have to have pinned down before transitioning to the public markets. 

The Gojek-Tokopedia merger could bring together the benefits of expanded horizontal integration that would have otherwise been too capital-exhaustive or impractical to do on their own. The consolidation represents another stepping stone for Gojek to reach superapp-dom or virtual ubiquity in Indonesia’s digital economy, as it adds ecommerce to its ecosystem of services. For Tokopedia, Gojek’s finance arm and logistics/transportation network, as key commerce enablers, can supercharge its ecommerce capabilities in a way that no other acquisition in the same space could. Compared to a merger with a competitor, a merger with a potential adjacency presents more value-add for the consumer. 

Although Tokopedia and Gojek have been in talks for a merger since 2018, its resurgence in headlines seems to be a result of the slowdown in talks between Gojek and Grab given the contentions over Indonesia. From the investor perspective, the Tokopedia-Gojek deal seems like a more smooth-sailing alliance from the outset, and from a PR perspective, paints a home-grown victory for Indonesia’s tech scene. Even though Softbank backs Gojek’s rival, Gojek and Tokopedia share many investors as well. 

The merger, if done pre-IPO, could potentially bring more public investors to hop on Tokopedia’s IPO, not just on Wall Street, but also in Indonesia, given the benefits to both businesses and Indonesia’s digital economy. This means it could also be a win for the SPAC facilitating Tokopedia’s IPO. 

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