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SINGAPORE: In less than two months to 2021, we have witnessed more than half a dozen technology companies in the region announcing their plans to go public.
These include established Southeast Asian unicorns like Grab, Gojek, Tokopedia, and Traveloka, who have launched concrete discussions to explore new growth opportunities.
However, the initial public offering (IPO) ambitions of these tech unicorns, having grown from startups to the multi-billion dollar tech companies they are today, should come as no surprise.
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After all, their businesses have matured, gained significant market share, and are looking to shore up their balance sheets for the next phases of their growth.
However, the rush to go public is not exclusive to established unicorns. The region’s smaller pre-unicorn climbs have also started promoting similar plans.
Tech experts would easily cite Zilingo and Ruangguru as pre-unicorn climbers with serious ambitions to go public. More recently, Carro, which made strong returns in 2020, went public with its ambition to list within two to three years.
Given that investors have invested billions in each of them, it is not surprising that the pressure for an exit is mounting.
FILE PHOTO: A Traveloka employee works at the company’s headquarters in Jakarta, Indonesia, Aug. 2, 2017. REUTERS / Beawiharta / File Photo / File Photo
Venture capital fund investments in tech startups as early as 2013 are beginning to mature, so many directors could bet that 2021 will be a hugely successful year with listings bringing healthy outlets to their respective funds.
As early as 2019, companies like Traveloka and Tokopedia were in serious talks with investment banks for a double listing in the US and the region, according to various media reports.
HOW 2020 CHANGED THE MARKET CONDITIONS
However, poor economic conditions and weak market sentiment – not thanks to the failure of Uber Technologies’ IPO and WeWork’s disastrous attempt to list at the time it submitted its prospectus – meant that valuations and liquidity were not in favor of a listing.
Then came the year 2020, when the pandemic devastated the global economy, shutting down deals, and brought international travel to an abrupt and near-complete standstill.
Southeast Asian tech companies were not spared. Smove, a Singapore-based car leasing company, saw its revenue drop by 85 percent, forcing it to liquidate its operating arm and sell its intellectual property.
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Stoqo Teknologi Indonesia and Airy, both Indonesian start-ups, ceased operations in 2020. Tokopedia, Grab and Gojek carried out staff and salary cuts, as Traveloka, being in the travel business, also suffered a great impact .
Despite all these setbacks, 2020 revealed the market’s appetite to invest in the tech space, especially as the global economy was plagued with uncertainty and traditional brick and mortar businesses revealed their vulnerability to change.
SEA Limited, probably one of the few publicly traded options to invest in technology in Southeast Asia, saw astronomical growth in 2020, with its share price increasing by 400 percent.
In February, to capitalize on the hot market for tech stocks, Softbank publicly urged its high-profile companies in its $ 100 billion Vision Fund, such as China’s Bytedance and Didi Chuxing and Southeast Asia’s Grab, to accelerate plans to price.
If anything, 2020 was a year of reckoning for Southeast Asian tech companies.
SoftBank’s bottom line has been driven by a rise in the AFP / CHARLY TRIBALLEAU equity markets
Those who survived came out thinner and stronger. Grab saw its third-quarter revenue rebound to 95 percent of pre-COVID levels, and closed a $ 2 billion term credit facility in February 2021.
Gojek managed to secure a round of US $ 1.2 billion in March 2020 and raised an additional US $ 525 million in June and November. It then went on to acquire a 22 percent stake in Bank Jago of Indonesia in December.
Traveloka’s business in Vietnam has exceeded pre-COVID-19 levels, is almost back to normal levels in Thailand, and is at half pre-COVID levels in Indonesia.
HOT YEAR
In the wake of such a recovery, 2021 is shaping up to be a hot year on the Southeast Asian tech scene, sparking excitement for listings. The market is full of whispers of forward-looking plans.
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Aside from the pressure to exit and strong market sentiments, a suppressed appetite after the pandemic could explain some of the strong momentum to go public.
For example, last year saw an increase in newly listed Special Purpose Acquisition Companies (SPACs) in the US.
SPACs are special purpose shell companies that are listed, without assets or business activities, to acquire a business.
The acquisition is generally financed with a combination of cash and shares, and because the target valuation is typically at least four to five times that of the SPAC, the target owners will generally end up being the majority shareholder of the listed SPAC. due to the consideration paid in shares, hence it is called “reverse merger”.
Founded in 2015, Gojek started out as a motorcycle taxi app before quickly becoming a ‘super app’ AFP / BAY ISMOYO
Interest in SPACs has emerged among the unicorns of Southeast Asia. Tokopedia was in talks with Richard Li and Peter Thiel’s Bridgetown Holdings SPAC, but the focus has now shifted to its possible merger with Gojek.
The emergence of SPAC could have played a role in revitalizing the listing plans for these unicorns, adding excitement to the 2021 IPO scene.
Unlike a traditional IPO, SPACs offer a much faster and less cumbersome route to going public. Transaction risk is lower, and the time, effort and cost required for a SPAC listing is much less than a traditional IPO.
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This makes SPACs a much more attractive option for listing on the list of technology companies.
Since they originate in the US capital markets, SPACs also fit very well into the IPO plans of Southeast Asian technology companies, allowing them to achieve the type of valuation and liquidity most aligned with their expectations, which are listed only in Southeast Asia.
For SPACs, Southeast Asia offers an exciting and emerging opportunity with potential for growth.
Southeast Asian tech companies are attractive as they are part of the region’s fast-growing digital economy.
A report published by Temasek, Google, and Bain & Company shows that with a population of over 650 million, Southeast Asia’s digital economy is set to grow to $ 300 billion ($ 415 billion) by 2025, three times its current annual size, given the region’s relatively young population and increasing access to the Internet. Therefore, it is an attractive sector for investors looking for a high-growth portfolio.
Children wearing face masks play with a smartphone amid the spread of coronavirus disease (COVID-19) inside a house in a densely populated area in Jakarta, Indonesia, April 1, 2020 (Photo: Reuters / Willy Kurniawan ).
So is 2021 a good year for Southeast Asian tech companies to make the list?
Even with high levels of interest, the success of such plans and eventual IPOs will largely depend on the speed of recovery in the global economy and whether these companies can make their businesses profitable.
Investors are increasingly looking for investments that generate profits, rather than these companies attracting more investors.
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The pandemic has given these companies the opportunity to trim excess fat and move towards a more profitable operating model. With vaccines rolling out around the world, the economy appears headed for a strong recovery.
Brace yourself then, as the next Southeast Asian tech list shouldn’t be far behind.
Joel Shen is a partner in the corporate team at Withers KhattarWong. Leong Chuo Ming is a partner in the corporate team at Withers KhattarWong. Gabriel Li is an associate on the corporate team at Withers KhattarWong.
