The largest Asian tech merger in history will combine Indonesia's best-known unicorns: the ride-hailing company Gojek and the e-commerce marketplace Tokopedia.
The combined company, GoTo Group, will have a valuation of around US$18 billion, based on the latest fundraising for each company. U.S. investors may want to track the combined entity, with a potential stock-market listing in 2022.
The companies, which announced the deal on Monday complete with congratulatory message from the world's biggest boyband, BTS, have a formidable roster of backers.
Their investors include Alibaba Group Holding (BABA) and its Chinese rival JD.com (JD) , the largest Indonesian conglomerate Astra International (PTAIF) , the world's largest asset manager in the form of BlackRock (BLK) , not to mention venture-capital investors KKR (KKR) , Sequoia Capital and Warburg Pincus (WPCA) , oh and Facebook (FB) , Google (GOOGL) , PayPal (PYPL) and Visa (V) for good measure.
GoTo has the potential to be all things to all people in the world's fourth-largest country by population. The companies have a combined gross transaction value of US$22 billion, an "ecosystem" that they point out is equivalent to 2% of Indonesia's entire US$1.1 trillion GDP. Their 100 million monthly active users completed 1.8 billion transactions last year.
Indonesia is a very attractive market, with 2 in 5 of its 275 million population under the age of 25. It is also increasingly consumer-driven, with a new middle class keen to put their new-found spending power to work.
However, Indonesia is also the world's largest archipelago, and far from the easiest nation to serve logistically, or culturally. The economy revolves around Java, the world's most-populated island, which accounts for around 60% of output, and 55% of the population.
The formation of GoTo Group "will mean same-day e-commerce delivery moves a step closer to becoming the norm in Indonesia," the companies said.
Besides delivery, rides and online shopping, the company has a strong presence in financial services. It aims to estimate the roughly 51% of the population that is "unbanked," or has little to no access to the Indonesian financial system.
The concern is how much cash the companies will have to burn to reach those consumers. Their merger is forced in part by the rapid rate at which Gojek and Tokopedia have been spending that glitzy investment.
The results for investors are decidedly mixed at this early stage. Their Singapore-based rival, Grab, doubled its valuation to US$40 billion in April, when it agreed to form the largest SPAC deal to date by merging into a fund raised by Altimeter Capital Management. That raised US$4 billion for Grab.
But the listing has lagged since that April 14 deal, with Altimeter Growth Corp. (AGC) closing on Friday down 25.0% from the pre-deal price. U.S. regulators are taking a long, hard look at the SPAC craze, and I don't blame them. It makes no sense at all, investors putting cash into a vehicle while having no idea where it will drive, or if the engine even works.
Gojek had been exploring a merger with Grab, while Tokopedia had reportedly been in talks to go public this year. The two companies started cooperating in 2015 to use Gojek's delivery drivers to speed up online purchases on Tokopedia.
The larger prize is Southeast Asia. Gojek, which started life in 2010 offering delivery and rides with Jakarta's motorbike jockeys or "ojeks," has already expanded into the Philippines, Singapore, Thailand and Vietnam.
Gojek co-CEO Andre Soelistyo will become CEO of the new combined company, with his fellow co-CEO Kevin Aluwi continuing as CEO of Gojek. Tokopedia president Patrick Cao will become president of GoTo Group, with William Tanuwijaya staying as CEO of Tokopedia. Soelistyo will head the payments and financial services business under the new brand of GoTo Financial. That includes the e-wallet GoPay.
"The establishment of GoTo Group proves that you can believe in an 'Indonesian dream' and make it a reality," Tokopedia co-founder Tanuwijaya says in the statement.
Goldman Sachs (GS) is advising Gojek in the deal, while Citigroup (C) is the financial adviser to Tokopedia.
The combined company may seek to list in both Jakarta and the United States. It would seek a valuation of US$35 billion to US$40 billion on the open market, according to Bloomberg. Gojek shareholders will reportedly own 58% of the new GoTo, with Tokopedia investors holding the rest.
The US$18 billion merger would be one of the 10-largest in history in the Asia Pacific region, according to the Institute for Mergers, Acquisitions and Alliances, very slightly larger than the US$17.9 billion deal in 2008 that saw Westpac Banking (WBK) in Australia take over St. George Bank, which ranks ninth. There have been several telecommunications deals that have been larger, but none in the Internet space. Citic Pacific's 2014 acquisition of assets from its parent Citic Ltd., at US$42.2 billion, is the largest all-Asian deal to date.
