South-east Asia’s tech boom fuels record mergers and acquisitions

Technology sector dealmaking in south-east Asia hit $19bn in the first six months of 2021, the strongest-ever start to a year, fuelled by acquisitions by leading groups Grab, Gojek and Sea.

Mergers and acquisitions rose 114 per cent compared with 2020, according to data from Dealogic, reflecting investor enthusiasm for one of the world’s fastest-growing internet markets.

South-east Asia is home to about 400m internet users and the digital economy is projected to hit $300bn by 2025, according to a report last year by Google, Temasek, the Singapore state investment company, and consultancy Bain.

If announced deals are completed by the end of the year — including Grab’s merger with a special purpose acquisition company, which will value the SoftBank-backed start-up at $40bn — volumes would reach $75bn, well above the $17bn recorded in 2020 and $23bn in 2019. 

Harry Naysmith, head of investment banking in south-east Asia at Goldman Sachs, said the region’s tech economy had “accelerated by 5 to 10 years”, spurring large-scale liquidity events such as initial public offerings. 

One of the biggest deals was between Gojek and Tokopedia, the Indonesian tech groups, to create a technology platform worth more than $18bn, the sector’s biggest-ever merger. But even excluding that deal and Grab’s Spac, dealmaking in 2021 is still on track to set a full-year record.

Digital banks and lending were the main sectors generating interest, said Varun Mittal, a Singapore-based partner and fintech specialist at EY, the professional services firm. 

These include the acquisition by Sea, the gaming and ecommerce platform, of Indonesia’s Bank Kesejahteraan Ekonomi in January. The deal’s size was not disclosed.

“We are seeing fintech firms acquiring incumbents to gain access to regulatory licences and achieve scale at a fast pace,” Mittal said. “South-east Asia will have 10 to 15 new digital banks across Singapore, Malaysia, the Philippines and Indonesia over the next three years, thus making this sector one of the critical investment destinations.”

The telecommunications sector has also been popular, with companies consolidating to create scale and improve return on investment in 5G mobile networks, said Rohit Chatterji, co-head of Asia Pacific M&A for JPMorgan. 

Celcom Axiata and Digi.com, the Malaysia-based companies, this month finalised a merger to create the country’s largest telecoms group.

Chatterji said companies were also looking to monetise telecoms towers, including plans to “unlock capital from infrastructure that can be leased and shared”. 

Indosat Ooredoo, an Indonesia-headquartered telecoms company, sold its mobile tower portfolio for $750m in March to Digital Colony, a US-based infrastructure company.

The big test for investors will be whether companies are able to go public. Bukalapak, the Indonesian ecommerce company, is set to launch its IPO in Jakarta next month. GoTo, the name of the merged Gojek and Tokopedia entity, and Grab are set to list by the end of the year.

“If near-term capital market events go according to plan, we should see a real virtuous cycle begin,” said Naysmith. “More investors will get comfortable with the south-east Asian TMT [technology, media and telecom] sector’s ability to deliver returns.”