April 15 2024

Should Grab and GoTo merge?

In late 2020, Grab and Gojek were said to be close to agreement on a merger. If the deal had gone through, it would have created a juggernaut that probably would have dominated ride hailing and food delivery in most key Southeast Asian markets, while the combined fintech operations would have been formidable. However, GoTo ultimately instead merged with Tokopedia in a deal that likely appealed more to Indonesian regulators. So it is with great interest that 3 ½ years later, we observe reported talks between Grab and GoTo about a merger.

In a February research note, Australian investment bank Macquarie said that a union of the two Southeast Asian platform companies is “inevitable” – despite neither firm acknowledging discussions about a merger. Why is Macquarie so sure? Perhaps they know something the rest of us do not, but if we look at the performance of Grab and GoTo since their respective IPOs, we can see why consolidation could be the way forward. The share prices of both companies have plummeted since they went public. Grab’s has fallen more than 73% to US$3.33, while GoTo’s has done even worse, falling 82% to 68 Indonesian rupees (IDR). Neither company is profitable, though Grab is forecast to reach that milestone faster – in 2025 – while GoTo could swing to a profit in 2026.

While both companies’ fintech units have performed well, competition in the Indonesian market is intense. A union of Grab and GoTo could potentially create much larger payments and digital banking units that could build scale faster, though it would depend on how the deal was structured. At present, Gojek has a 22% stake in the Indonesian lender Bank Jago, while Grab has a 28.1% stake in PT Bank Superbank Indonesia and a 90% stake in the e-wallet Ovo. The Singaporean company also has undisclosed stakes in the state-backed e-wallet LinkAja and the digital investment platform Bareska.

Macquarie estimates cost savings of 50% from a merger. Even if that estimate is a bit bullish, it is likely that a union significantly reduce the need to heavily subsidize customers and drivers in the ride hailing and food delivery segments – which always eaten into margins. Further, access to Grab’s many financial services businesses in Indonesia could create e-commerce synergies that would make the new entity more competitive vis a vis Sea Group’s Shopee – though GoTo only controls 25% of Tokopedia following TikTok’s acquisition of 75% of the Indonesian e-commerce firm.  

Meanwhile, the implications for market competition of a Grab-GoTo merger may not sit well with regulators. It is less an issue for digital financial services – which is highly fragmented in Indonesia – than ride hailing and food delivery. One of the reasons regulators greenlighted the Gojek-Tokopedia deal was that at its core it was a marriage of e-commerce and mobility, not a merger of the two biggest ride hailing and food delivery players.