Southeast Asia’s super apps Grab and Gojek have made significant progress towards a possible merger, Bloomberg reported this week. Grab co-founder Anthony Tan would become the CEO of the combined entity, while Gojek executives would continue to run the Gojek brand.
Reuters revealed on Thursday that Grab told employees in an internal note that the firm is well placed to make acquisitions. “There will always be rumors and gossip. Don’t let those distract us,” CEO Anthony Tan is quoted.
The rumors of a merger have been circulating for months. Its investors, especially Softbank’s Masayoshi Son, were reportedly pushing for the firms to join forces, to avoid burning more cash and eventually hit profitability. A combination of the businesses, however, wouldn’t be easy.
“Southeast Asia, especially Indonesia, is a market that’s been divided by Grab and Gojek into verticals like ride-hailing, food delivery, and payments,” said Joel Shen, a corporate lawyer with Withersworldwide, who specializes in M&A and Southeast Asia tech. “These companies are not profitable at the moment, they’re burning through large sums of capital and investors’ money to gain market share and that is not sustainable. There is a strong impetus for a merger.”
In the beginning, Grab reportedly planned to acquire only Gojek’s Indonesian operations, while Gojek’s shareholders preferred a regional deal. “Outside of Indonesia, Gojek is nowhere near as big as Grab, so [the regional merger] makes sense,” Shen said. “I don’t see Gojek agreeing to a merger under any other circumstances.”
Since both have a long list of similar products and services, it is currently unclear how they would combine each vertical, especially financial services which is a quite complicated business. In Indonesia, Gojek’s GoPay and Grab-backed Ovo are the leading players. Grab recently led a USD 100 million funding round in LinkAja, which is backed by a number of state-owned companies. Ovo, on the other side, has been rumored to have be in talks with payment platform Dana.
Regulatory hurdles
The combined Grab and Gojek would control the e-wallet market in the country, but Bank Indonesia forbids a ‘sole ownership’ in order to maintain healthy competition in the industry. “Digital payments in Indonesia present the single most difficult regulatory hurdle,” said Shen.
Both parties declined to comment on details. In Gojek’s internal memo, which KrASIA received on Friday, the co-CEOs Kevin Aluwi and Andre Soelistyo told employees to “ignore the noise” as speculation on this topic is and continues to be inaccurate.
“Gojek has always been in a strong position that allows us to make decisions based on what is best for the company and for our mission,” the note said. “We are very well capitalized and have enough runway to continue to operate and grow our business for years to come. As such, there is no pressing reason for us to make the sort of deal being referred to in the media.”