Indonesia’s two most valuable startups—ride-hailing, food delivery and payments giant Gojek and eCommerce leader Tokopedia—are currently in fervid discussions about sealing an $18 billion USD merger. The talks come ahead of a potential dual IPO listing of the combined entity in Indonesia and the USA, while the option of working with a blank-cheque company for the latter is under consideration. 

The Gojek-Tokopedia merger would be the biggest deal yet for the country and could forever transform eCommerce in Indonesia. An amicable alliance between the two companies has been discussed since 2018, as the founders and several senior executives have been friends for the past decade. They will apparently seek to finalise the deal in H1 2021. 

We look at Indonesia’s startup unicorns and what’s being going on.

Negotiations gathered momentum in November 2020, after merger talks between Gojek and Singapore-based competitor Grab reached an impasse. In late December, Gojek and Tokopedia signed a detailed term sheet to conduct due diligence of each other’s business and are currently reviewing merger ratios that would grant each side substantial ownership of the equity.

What would this merger mean?

Indonesia has the fastest-growing internet economy in Southeast Asia, a region with nearly 650 million people and an expected internet economy revenue of $300 billion USD by 2025. The country’s eCommerce market has witnessed accelerated growth ever since pandemic restrictions charged up the demand for eServices. 

As a merged entity, Gojek and Tokopedia would expand their market share and grab a bigger piece of this booming industry, by creating a colossus that encompasses ride-hailing, food delivery, eCommerce and payments in one single platform. The decade-old tech pioneers share some common investors, including Temasek Holdings Pte Ltd, Google and Sequoia Capital India.

Gojek’s investors include Warburg Pincus LLC and Tencent Holdings Ltd., while Tokopedia has backing from SoftBank Group Corp and Alibaba Group Holding Ltd.

Tokopedia operates solely in Indonesia and reached more than 100 million users in December, while Gojek has 38 million active monthly users across five countries in Southeast Asia. With Gojek valued at about $10.5 billion USD and Tokopedia at $7.5 billion USD, the merged company would create an Indonesian behemoth with a combined $18 billion USD valuation. As such, this blockbuster deal would significantly impact the region’s economy and potentially reshape the landscape of Indonesia’s eCommerce market. 

Regional arch-rivals

Gojek and Topekpedia’s main competitors in the ASEAN region are Singapore-based firms Grab and Sea Ltd. Sea operates eCommerce platform Shopee and is the only major internet company from Southeast Asia listed in the US. It holds a market value of $100 billion USD and its shares surged by almost 400% in 2020. 

Shopee’s expansion is facilitated by its rising share price, enabling it to raise funds easily, the latest reaching $2.6 billion USD in a stock offering in December. Moreover, Sea recently acquired Indonesian Bank BKE to gain a foothold in the country’s fintech arena. The Gojek-Tokopedia merger would strengthen competition with Sea, and an IPO of the merged entity would provide investors with a new entry into Southeast Asia’s digital economy. 

Grab, which is also an all-inclusive store for ride-hailing, digital payments and food delivery platform, has been a fierce competitor of Gojek. Despite the two startups holding on-and-off talks about combining forces and making substantial progress in December, the deal fell asunder due to their views colliding over the handling of Indonesia’s key market.

Government officials had also expressed concerns over the prospect of reduced competition in the sector if the two companies merged. A deal between Gojek and Tokopedia is likely to face less scrutiny and regulatory opposition, as the two complement each other and the overlaps in their services are limited. The only potential sticking point is in the digital payments segment, as Gojek operates the GoPay platform, while Tokopedia is a major shareholder in digital payment service OVO. 

Footprint on eCommerce ecosystem

A Gojek-Tokopedia merger would dominate the Indonesian eMarket, which is currently one of the fastest-growing in the world. A listing of the two combined could raise close to $2 billion USD, making it one of the biggest IPOs of an Indonesian company.  Their US listing would provide global investors with an alternative to Sea, thus restricting its dominance in the region.

“An international listing for a regional internet group will showcase that Southeast Asia isn’t a one-hit wonder. It’ll pave the way for global growth and exits for several other high-growth startups from the region,” said Varun Mittal, head of emerging markets fintech business at E&Y.

Competing startups in ASEAN are locked in what seems like a battle over Indonesia’s burgeoning digital economy. The potential Gojek-Tokopedia merger also demonstrates a new phase of maturity which Southeast Asian unicorns are entering into. Investors require exit strategies, impelling companies to concoct fresh, yet challenging solutions, which could have lasting effects on eCommerce in Indonesia and the region.