Indonesian Startups ‘Exit’ Trends in 2021; IPO, Mergers, and Acquisitions

Indonesian jumbo startups such as Gojek, Tokopedia, Traveloka, and Bukalapak are ready to offer their IPO. Meanwhile, other startup companies have started to carry out mergers and acquisitions. Bizzy Digital was acquired by Warung Pintar last month.

This action is to strengthen the position of corporations in Indonesia’s e-commerce business to business (B2B) market and support expansion plans. Venture capital investors estimate that an exit strategy in the form of IPOs and startup consolidation will flourish this year.

An exit strategy is a planned approach to ending investment in a way that will maximize profits and/or minimize losses. “Startups, especially those with growth stages, will look to more aggressive investment options such as IPOs,” said CEO of Mandiri Capital Indonesia Eddi Danusaputro, Wednesday (17/3). “Maybe after getting series B funding.”

Meanwhile, startup companies that are successful in seeking funding (fundraising) are considered to be eyeing acquisitions. It aims to achieve growth in non-organic, product, or digital talent. “It’s better for startup growth stages or those that have passed several funding rounds,” said Eddi.

Merger and Acquisition Volume Increase

However, the potential for IPO and consolidation will depend on the sector and area of ​​operation. However, PwC’s research entitled Global M&A Industry Trends shows that the volume of mergers and acquisitions of global technology companies increased by 34% on an annual basis (year on year / yoy) in the second semester of 2020.

In terms of value, an increase of 118%. “The growth in merger and acquisition activities in the technology and telecommunications subsector is the highest,” the report said, quoted on Tuesday (16/3). Overall, the volume of consolidated transactions in the United States (US) increased by 20%.

Meanwhile, Asia Pacific and Europe, Middle East and Africa (EMEA) each increased 17%. Global Deals Industries Leader, Partner, PwC AS Brian Levy assessed that the corona pandemic is considered to encourage merger and acquisition transactions.

“Accelerating digitalization and direct business transformation are top priorities. Mergers and acquisitions are seen as the fastest way to make this happen,” he said in a press release.

The consolidation trend is also influenced by low-interest rates, abundant available capital, and the desire to acquire innovative, digital or technology-based businesses. PwC noted, available capital from companies in the form of securities and cash was more than US$ 7.6 trillion. Meanwhile, from private equity corporations at US$ 1.7 trillion.

The Potential of Consolidation in Indonesia

Venture capital assessed that, in Indonesia, financial technology (fintech) startups, e-commerce, and health have the potential for massive consolidation this year. In November 2020, Farmaku acquired DokterSehat. Farmaku a health startup that provides drug purchase services, and DokterSehat is a health information portal.

Bain and Company estimates that companies in the health sector will intensify their buying and building strategies this year. “Investors are focused on consolidating hospitals and laboratories,” was quoted as saying in a report released in March 2020. In addition, fintech is forecasting massive consolidation this year.

Based on research by Dealroom, Finch Capital and MDI Ventures released in September 2020, the landscape of fintech startups’ exit strategy in Southeast Asia since 2015 has been mostly in the form of mergers and acquisitions. The main targets are companies that are in the payment and investment management sectors.

Nicko Widjaja, CEO of BRI Ventures assessed that the Indonesian fintech industry ecosystem is more like China than Silicon Valley, USA. “Reflecting from Tiongkok (China), it makes perfect sense if Indonesian fintech, who control a smaller market share, choose to work with strategic partners,” he said, June 2020.

In China, there are only two big paying fintech players which are Alipay and Wechat Pay. Therefore, according to him, the news that OVO and DANA are in talks for a merger, it’s very possible. Merger will strengthen the fintech ecosystem industry in Indonesia.