Golden Gate Ventures: the upcoming rise of M&A in ASEAN
By Liz Lee for DealstreetAsia Magazine,
Singapore-based early-stage venture capital firm Golden Gate Ventures foresees the pace of mergers and acquisitions (M&As) in Southeast Asia catapulting, as more institutional funds, protectionists economic policies and global funds look to expand their footprint in the region.
The venture capital firm, in a report, predicted that this region will see a minimum of 250 M&A’s occurring each year beginning 2020, reflecting a 500 per cent increase in M&A exits from the number expected in the 2015 to 2020 period.
The VC firm, which has investments across this region and Silicon Valley, in its second report on the growth of M&As in Southeast Asia, released Tuesday, noted that while the option to go public in regional exchanges remains a distinct possibility, acquisitions will drive primarily exits in Southeast Asia. 
Golden Gate Ventures managing partner Vincent Lauria explained:
“In the United States, a successful exit involves going public. The financial returns generated from listing on NASDAQ or the London Stock Exchange usually mean that both investors and entrepreneurs alike have generated a pretty healthy return on their investment. In Southeast Asia, it’s the opposite: a trade sale will often result in larger financial returns than going public, especially if the acquirer has a strong strategic interest in the region.”
Of the top ten M&As in the region by value, eight occurred within the last three years. Golden Gate Ventures expects this trend to accelerate, especially with the surge in capitalisation from global funds.
The VC firm, which is currently raising its second vehicle, targeted at $50 million, pointed out that there has only been 11 tech IPOs in Southeast Asia since 2005, while there have been 127 acquisitions during the same time period.
The most notable regional exits have all been acquisitions: Rakuten’s record breaking purchase of Viki for $200 million in 2012, Zendesk’s $30 million acquisition of Zopim in 2014, and even McAfee’s landmark acquisition of Darius Cheung’s tenCube back in 2009.
“As the region becomes a target for more global funds, much of that funding will only accelerate the rise of profitable, viable businesses, which in turn will foster more M&A activity, especially in light of emerging Asia’s increasing strategic and economic value,” Golden Gate Ventures’ report added.
The increase of non-VC investments also bodes well for M&A activity in the region, as Chinese tech firms like Alibaba, Tencent, and JD have already made several large investments in the region.
Major Japanese banks such as Credit Saison have also recently begun investing in fintech startups in Southeast Asia, looking to increase their customer base.
“Often, such investments are a prelude to acquisition, as they are an opportunity for the investor to follow the startup closely and learn more about its market for several years or months. Australian Securities Exchange (ASX)-listed large-cap tech companies have also been major players,” the VC firm observed.
Indian companies have also been strengthening ties to Southeast Asia, particularly Singapore. It has been reported that round three-fourths of Indian startups that raised early-stage funding in 2015 will redomicile to Singapore, seeking a more amenable regulatory climate.
Indian foreign direct investment (FDI) in Singapore also reached $25 billion in 2014. This could point to an increasing trend towards M&A by Indian companies in the next three to five years.
IPO still an option
Tech companies going public on regional exchanges is a rare event with most turning to ASX to list. In the past ten years there have been 145 per cent more M&As than IPOs in Southeast Asia.
Among the markets, the Singapore Exchange has become the international platform of choice for fundraising – positioning itself as a friendly market to take a business public through numerous initiatives, including the junior tech board Catalist, to help tech companies list more easily. These initiatives appear to be making inroads with technology companies, Golden Gate Ventures highlighted,
Among the IPO candidates are Trendlines, an Israeli technology incubator that listed on Catalist November 2015, and security firm Secura in January 2016. Upcoming is cloudbased software provider Deskera planning to go public sometime this year.
Better funding leads to better potential sales
Capital investment in Southeast Asia has increased by 47 per cent since 2013, Golden Gate Ventures pointed out, with 2015 seeing the formation of Southeast Asia-focused firms with a total capitalisation of as much as $2 billion.
The growth in funding has enabled startups to rapidly build development capabilities, hire talent, and improve operations across the region. These mature startups are attractive to prospective buyers who want to expand their footprint in the region’s fastest growing markets.
Through acquisitions, global players can circumvent many of the difficulties associated with growing a business in a foreign market, Golden Gate Ventures noted.
Cosmetics company, Luxola, founder Alexis Horowitz-Burdick noted that acquisitions are extremely useful for international companies looking to expand into Southeast Asia.
“This is a really difficult region to do business, especially for outsiders that aren’t too familiar with the different markets.”
In July 2015, Luxola was acquired by LVMH Moët Hennessy Louis Vuitton SE, better known as LVMH.
“By acquiring a company with a strong team, existing customers, and a strong operational foundation, global companies can often expand into Southeast Asia much more efficiently than attempting it themselves,” Horowitz-Burdick said.
In an earlier report, in August 2015, Golden Gate had said that Series A investments in Southeast Asian (ASEAN) internet startups had almost tripled in the 2010-2014 period, from $29 million in 2010 to $87 million in 2014, while adding that most capital in Southeast Asia flowed into Singapore, during this period, where 10 startups ventures had raised $60 million in 2014 in total. , with a Series A investment as between $1 million and $10 million by GGV.
The article first appeared in DealStreetAsia.com
