Gojek-Tokopedia merger to rival Grab in region

Jakarta

INDONESIA is about to launch a tech giant that will rival Grab in the region in terms of size and investor interest.

Sources told The Business Times that ride-hailing giant Gojek and e-commerce player Tokopedia will finalise a merger this year and seek a listing in 2022.

The merged entity is expected to have a combined value of US$18 billion but once listed, that valuation could rise multi-fold.

After months of negotiations and discussions, the two Internet players are now racing to finalise the deal in the wake of Grab's recent announcement to list on Nasdaq through a US$39.6 billion merger deal with special purpose acquisition company (SPAC) Altimeter Growth Corp.

"The end game for the Gojek-Tokopedia merger is definitely a listing," said one source close to the deal.

"Once listed, the company will have greater access to capital and be able to raise new funds more easily." He added that a listing will also boost the new company's valuation.

"It could easily be US$50 billion given the current market sentiment towards South-east Asian tech players. The new merged entity will be called GoTo and will fully incorporate the businesses of Gojek and Tokopedia," he said.

Gojek's institutional investors include venture capital firm East Ventures which also owns shares in Tokopedia, Singapore's Temasek Holdings, Google, Astra International and Northstar Group.

Among Tokopedia's largest shareholders are Softbank, Sequoia India, Temasek and Cayman Islands-registered Radiant. The company's two founders, Tanuwijaya and Leontinus Alpha Edison, together control 6.56 per cent.

Gojek, co-founded by Nadiem Makarim, currently Indonesia's Minister for Education and Culture, and Tokopedia, co-founded by William Tanuwijaya, are poster boys for Indonesia's fast-growing digital economy.

With its vast domestic market and fast growing middle class, Indonesia's digital economy is expected to be worth about US$124 billion by 2025.

As major players in this digital economy space, both Gojek and Tokopedia offer investors a far-better proposition as a merged entity rather than as separate entities.

"The biggest strength of the merged entity is that it creates a complete ecosystem for consumers as they can shop on Tokopedia, pay through Gopay and have their goods delivered by Gojek," said Joel Shen, a partner at global law firm Withers.

Gojek has more than 170 million users of its more than 20 services while Tokopedia has 100 million active shoppers and more than 10 million merchants on its platform covering 99 per cent of Indonesia.

"It will be closer to a super app than any in the market at the moment," noted Mr Shen. "Users will be able to go to the app for multiple reasons and will echo how Indonesian conglomerates have built their respective ecosystems."

He noted that while GoTo would most likely seek a dual listing in Indonesia and perhaps New York, the company could also be a potential target for SPACS.

"The timing of the merger is fantastic," Mr Shen said. "SPACs are hunting for targets to acquire and South-east Asia provides these targets."

Many of the region's startups have institutional investors who are eager to exit and SPACs provide a quicker exit route compared to a traditional initial public offering (IPO) which is also more costly.

However, most jurisdictions do not allow SPACs to be listed on their stock exchanges.

Mr Shen warned, however, that the merger is not guaranteed to generate the anticipated investor interest given certain factors: while both Gojek and Tokopedia are dominant players in Indonesia, neither has a track record of successfully operating outside the country.

In addition, the new merged entity will face strong competition even on its home turf from Grab and Shopee.

"There is no clear strategy of how they will win and how to list with a compelling narrative," explained Mr Shen. "GoTo is still unprofitable as a whole."

But with global investors hungry for assets, the enticing prospect of owning shares of one of the largest tech companies in one of the fastest-growing digital markets in South-east Asia may just be too good to miss out on.