Recent news flow has highlighted Grab, a South-east Asia based ride-hailing company is planning a US listing through a special purpose acquisition company (SPAC) merger. SPACs are companies that are created solely to merge or acquire another business and take it public.
The year 2020 had been the most active year for SPACs with 44 technology media and telecom (TMT) companies (valued at more than $50m valuation) announcing that they would combine with SPACs to go public.
In the first half of 2020, many countries went into lockdown and investors faced unprecedented market volatility. As a result, initial public offering (IPO) activity declined sharply in March and April 2020. However, in the second half of the year, a growing number of TMT companies ditched the traditional IPO route and instead combined with SPACs.
Softbank backed, the Singapore company Grab is discussing a deal with a SPAC affiliated with Altimeter Capital Management, that would value Grab at between $35bn and $40bn. Starting with one ride hailing app, Grab has now expanded its lines of business into online food delivery, ecommerce, fintech and online payments. Grab has always been motivated to try and explore new innovations, such as the recent move into electric vehicles (EV). The tech firm has now a fleet of 5,000 EVs, consisting of grab cars, grab bikes, and others.
Grab going public to give a competitive edge
Grab’s listing considerations come after talks to combine with Indonesian rival Gojek collapsed, a deal that was widely reported last year. Merger talks did not surface in the next few months, as both Grab and Gojek battled the Covid-19 pandemic and made layoffs. The pandemic also affected Grab and Gojek through a drop in bookings due to reduced need for on-road transport affected by widespread lockdowns and fear of spreading the virus when using mass transit services.
To offset their core taxi business’s losses, ride hailing apps are diversifying from their core business model to other on-demand delivery services. Gojek is now in advanced discussions to merge with Tokopedia, an Indonesian technology company specializing in ecommerce to create an authority in the region by increasing their on-demand delivery operations. The merged entity also plans to go public as well via a SPAC later this year. This also shows why Grab is itself looking at the SPAC opportunity.
Rush among mobility companies to go public via SPAC
There has much rush in mobility business including electric vehicle, autonomous vehicles as well as ecommerce, and fintech industry to go public through SPAC mergers. In 2020, there has been a large number of IPOs involving EV and autonomous vehicles companies, followed by fintech (including online payment and mobile payment) and ecommerce.
The big deals included the listings Fisker, Nikola, QuantumScape, Lordstown Motors, Canoo, Luminar Technologies and Velodyne Lidar. In 2021, the biggest one so far is Lucid Motors’s merger with Michael Klein’s Churchill Capital.
In 2021, we expect a growing number of TMT companies to shun the traditional IPO process and, instead, go public by combining with a SPAC. Surprisingly, even if Grab is not able to complete a SPAC listing, it is certain that it will follow the traditional process to stage an IPO on a US exchange.
The increased competitive challenge from the future combination of Gojek and Tokopedia is a major incentive for Grab to achieve a public listing.