With the Grab-gojek merger talks hitting a roadblock over Grab CEO Antony Tan’s refusal to cede control of the combined entity, the focus has shifted to the merger discussions between Tokopedia and gojek, which have also been in the works for long.
While conversations between these three firms have happened on and off in the past, they have taken a more serious tone recently.
As per the latest report by Bloomberg, Tokopedia is in advanced talks with gojek for a US$18-billion merger deal and that the two tech giants have signed a detailed term-sheet to conduct due diligence of each other’s business.
The report suggests that Masayoshi Son, Chairman of SoftBank, which is an investor in both Grab and gojek, was forcing the two to come together but he failed to convince Tan on the benefits, which in turn is paving the way for a potential marriage between Tokopedia and gojek, Indonesia’s two most valuable startups.
Indeed, Tokopedia and gojek have been engaged in merger talks since 2018, but they gained momentum after the conversations between gojek and Grab reached an impasse.
While a union is still a work in progress and we don’t know yet which two entities will eventually come together, it would be interesting to examine which merger will make better business sense — Grab and gojek or Tokopedia and gojek.
First off, let’s look at the investments raised and valuation being commanded by Tokopedia and Grab.
If we look at Grab and Tokopedia from an investment and strategic points of view, both have surpassed the Series H stage. It means there is no room for the next round of funding, other than an IPO. Plus, neither is profitable as both keep investing money back into the business to further grow, expand and increase customer base.
“However, when compared to the whopping US$10.1 billion raised by Grab to date, Tokopedia’s ‘paltry’ US$2.8 billion looks way more nimble and leaves enough room for a higher valuation at IPO stage,” observed Sergei Filippov, Managing Partner of Singapore-based Morphosis Capital Partners.
Tokopedia, an e-commerce giant, has raised US$2.8 billion over multiple rounds and is currently valued at around US$7-8 billion. This means that the investors’ investments value have more than doubled (2.5-2.75x).
In comparison, Grab, which has raised US$10.1 billion till date, is valued only US$15 billion, meaning the value of the investment has increased only 1.48x.
“This is why I believe a Tokopedia-gojek potential merger holds way more business sense and provides better market value,” added Filippov, who has been closely watching the industry for long.
Incidentally, Grab Financial Group has just raised US$300 million in a funding round led by South Korea’s Hanwha Asset Management, as per a report by The Information. This could signal that the Grab’s financial arm, with all its fintech projects, may go to the IPO separately, which indicates that a Grab has no reason to merge with gojek.
“We should remember that financial services were one of the primary reasons why Grab’s valuation rose from US$3 billion in 2016 (when it was just a ride-hailing service) to US$15 billion in 2020 (when it started to offer wealth management services and insurance plans),” he shared.
Now, in terms of synergy, there is more synergy between Tokopedia’s C2C e-commerce marketplace and gojek’s ride-hailing/delivery/fintech units than between two gojek and Grab, who are direct competitors to each other.
Besides, gojek is already delivering tens of thousands of orders per day for Tokopedia, and there is a lot of on-demand products existing on both platforms; for example, one can buy gold in both gojek and Tokopedia.
“Combining e-commerce and unrivalled logistics network, the potential tech behemoth can play the role of Alibaba or Amazon for Indonesia and other Southeast Asian countries,” commented Filippov.
A Tokopedia-gojek deal will also make better sense from a market point of view, as a Grab-gojek deal will only lead to a super monopoly, which will affect end-customers.
“Since SoftBank is a key shareholder in both Grab and Tokopedia, different merger talks are all about making more business sense, please investors and pose more value at a potential IPO to be a success,” according to Filippov. “We shouldn’t forget that all these different merger combinations are also there to test public opinion to estimate potential interest at the IPO stage.”
Certainly, Grab, gojek and Tokopedia — all unicorns — make an interesting triangle. But, according to industry watchers, the talks among them indicate that there is a need to address the inevitable question for every tech business at this juncture of its lifecycle: where do you go from here after being coined a unicorn?
In fact, Grab, Tokopedia and gojek are from a similar cohort as Razer and Sea Group — the batch of tech startups founded from the late 2000s to early 2010s. Both Sea and Razer have graduated to the public market and demonstrated admirable success.
“Hence, many will ask whether the likes of Grab, gojek, Tokopedia and even Traveloka could follow suit, and if so, ‘when’,” said Dave Ng, General Partner of Altara Ventures.
In his view, Tokopedia and gojek could be complementary as their businesses have less competitive dynamics. They also operate in the same key market, which makes it potentially appealing to merge and create a national tech champion.
Secondly, the marriage could create an overall business which now spans across multi-product and services categories, giving more legs to the aspiration of being a true super app.
Thirdly, from a culture and people perspectives, both companies grew up in an “Indonesian tech for Indonesia” environment, and the management of both sides haven’t really crossed swords.
“You can imagine it is likely easier to come to the table vs with someone whom you have tried to eliminate throughout your business life,” Ng opined. “However, this doesn’t automatically translate to more synergy or merit vs the case of a gojek-Grab merger. Otherwise, gojek wouldn’t have explored the option with Grab in the first place.”
Having said that, both these deals have their pros and cons. With the Grab-gojek union, there could be meaningful consolidation of market coverage, better efficiency on the costs side of equation, a combination of the strong regional talent pool and creation of an undisputed dominant player. However, these would only be achieved after considerable rationalisation across leadership, people, operations and processes.
“On the other hand, a Tokopedia-gojek combination may look appealing for various reasons. However, both companies are presumably not profitable yet. At such scale once combined and with multiple business offerings, they would need to figure out how to fund such significantly expanded operations going forward. That is not trivial,” Ng concluded.
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