Goto and the Conquest to Capture SEA
On the Gojek-Tokopedia Merger and Road Ahead for Southeast Asia's Internet Economy
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Two of Indonesia's largest tech startups, Gojek and Tokopedia, announced last month they will merge and look to go public this year, a move that will create one of Southeast Asia's biggest tech conglomerates and cover everything from ride-hailing and digital payments to e-commerce.
(Source: GoTo)
The merger will reshape the competitive landscape of the region's tech scene, which will now primarily be based around a three-way battle of the titans between Singapore-based Sea, Grab, and the newly formed GoTo Group, which will bring together Gojek and Tokopedia. The combined valuation of the two companies adds to about $20 billion, according to S&P Global Market Intelligence data.
Gojek and Tokopedia: The New Goto Group
GoTo will be preparing for a dual listing — in New York and Jakarta — later this year, executives said. Gojek’s Andre Soelistyo will lead the combined business as GoTo Group CEO, with Tokopedia’s Patrick Cao serving as GoTo Group President. Kevin Aluwi will continue as CEO of Gojek and William Tanuwijaya will remain CEO of Tokopedia, the two firms said in a joint announcement.
The combined entity is “a globally unique and highly complementary ecosystem,” the two firms said as they look to better compete with heavily funded super app Grab and e-commerce platform Shopee. GoTo executives claimed that the combined entity features:
Total Group Gross Transaction Value (GTV) of over $22 billion in 2020
Over 1.8 billion transactions in 2020
Total registered driver fleet of over two million as of December 2020
Over 11 million merchant partners as of December 2020
Over 100 million monthly active users (MAU)
An ecosystem that encompasses 2% of Indonesia’s GDP
(Source: GoTo)
Both Gojek and Tokopedia did not disclose the shareholding structure of the combined entity, but Soelistyo said the group is a "partnership of equals."
They each count U.S. tech giant Google and Singapore's state investor Temasek among their shareholders. Other investors in Gojek include Facebook, which invested in the company's payment arm, global private equity company KKR as well as Indonesian conglomerate Astra International. Tokopedia's biggest shareholder is SoftBank, followed by Chinese e-commerce giant Alibaba. The companies said that GoTo Group has the backing of its "major investors."
Antitrust Investigations and Other Government Approvals
Indonesia's anti-trust agency (KPPU) said it would scrutinize the multi-billion dollar merger of the country's startups Gojek and Tokopedia to check for potential monopolistic behavior. The KPPU said neither company has given the agency notice about the merger, but they are allowed to notify authorities 30 days after the transaction.
A merger between Gojek and Tokopedia will face less regulatory scrutiny than a Gojek-Grab merger, as their business overlaps are limited. However, a potential hurdle may be their payment services. Tokopedia is a major shareholder in digital payment service OVO, while Gojek operates GoPay. Both are two of the largest digital payment services in Indonesia.
The KPPU also urged other business owners and members of the public to report any violation of regulations on the business competition after the formation of the GoTo group. If the KPPU assessment found that the merger could result in unhealthy business competition, the company will be told to make adjustments to their operation to maintain fair competition, but it does not rule out mergers.
Sign of Strength or a Necessity?
While this merger may sound rather intimidating, it seemed to have arisen from troubling waters. Prior to this, both unicorns were seeing falling market shares and bleeding money despite being some of the largest players in their respective local markets.
Gojek initially held merger discussions with Grab last year, but the deal collapsed as they could not reach an agreement on the shareholding ratio of a combined entity. Grab has since announced plans to go public in the U.S. via a special purpose acquisition company, or SPAC, seeking a valuation of $39.6 billion in what would be the biggest-ever deal of its kind.
Shopee had been growing aggressively over the years, overtaking Tokopedia on multiple public metrics, and employing 60% more people within Indonesia.
The decision to merge comes as competition in the region's tech sector heats up, especially as Sea makes aggressive inroads into sectors that had been the stomping ground of Gojek and Tokopedia.
Sea, the region's biggest tech company by market capitalization, has expanded into areas such as e-commerce and food delivery by offering aggressive promotions, backed by a fat war chest it built up through its ability to tap the public market.
This merger will pit GoTo against Alibaba Group Holding Ltd.-owned Lazada South East Asia Pte. Ltd. and Sea Ltd.'s Shopee in the e-commerce space. And, its financial services business will compete with the fintech arm of Grab Holdings Inc., the ride-hailing app from Singapore that has similar ambitions to grow its fintech business across Southeast Asia. Household Chinese fintech names such as Alibaba and Tencent Holdings Ltd. have narrowed on Southeast Asia, one of the fastest-growing economic regions in the world, for future expansion. Tencent announced a regional hub in Singapore, while Alibaba's affiliate Ant Group Co. Ltd. is seeking opportunities in payments and other fintech applications.
(Source: S&P Global)
Grab and GoTo plan to grow using the same playbook as the Chinese giants: tap into the financial lives of their users and utilize their combined platforms to sell financial services ranging from credit to insurance.
Goto’s Road Ahead
Indonesia is home to over 273 million people, making up over a third of the entire SEA region itself. Indonesia is also the biggest economic contributor in the region, with the proof in its 2020 digital economy valued at US$44B, a massive spike after its US$8 billion valuation five years prior.
Research by Google, Temasek Holdings, and Bain & Co forecasts that Southeast Asia’s internet economy could swell to US$300 billion (about S$415 billion) by 2025, three times its current annual size. As Grab prepares itself for a US listing, so did the Tokopedia Gojek coupling – with both targeting a similar value of US$40 billion.
This proposed IPO by GoTo will come on the back of more fundraising, and if successful, will be the first major IPO by an Indonesian tech startup. This positions Indonesia to be a mammoth presence in the SEA digital economy game, should all its players step up their game on the backs of these giants’ movements.