COMMENTARY

Sea can pass on S-E Asian deal frenzy

Hong Kong

MERGER and acquisition talks are swirling around South-east Asia's hot technology companies, Tokopedia, Grab and Gojek.

Singapore-based Sea, valued at US$106 billion, whose activities span gaming to e-commerce and payments, is big enough to swallow any of them if it wants.

User growth across various online services is booming and there's a sudden push to consolidate.

Indonesian ride-hailing and payments firm Gojek and the country's number two e-commerce company, Tokopedia, are in advanced talks for a US$18 billion merger ahead of a dual listing, according to media reports.

In December, Bloomberg reported that Gojek was edging closer to a deal with its direct competitor, Singapore-based Grab.

There is some overlap with Tencent-backed Sea. The exception is in its video game unit, Garena. That boasts 572 million quarterly active users, accounted for about half of total revenue and generated a 120 per cent year-on-year increase in adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) in the third quarter.

Elsewhere, Sea's mobile wallet payment volumes exceeded US$2.1 billion for the same period. And its Shopee business leads online purchases in Indonesia and Singapore.

Sea shares have risen nearly 13-fold since its 2017 listing in New York and, even after factoring in net losses, which widened to US$425 million in the September quarter, the company has a war chest of sorts.

A follow-on share issue that priced in December raised about US$3 billion. Prior to that, the company had net cash of about US$3.5 billion as of September.

But founder and chief executive Forrest Li appears keener on smaller strategic acquisitions. Garena acquired Canadian video games company Phoenix Labs in January 2020 for an undisclosed sum, for example. A foray into ride-hailing would be a costly distraction.

Even China's top super-apps don't own all the services they offer. And buying out Tokopedia, its closest rival in shopping in Indonesia, would be fiddly owing to different product mixes, with Tokopedia selling more electronic goods, and likely difficulties integrating payment methods.

Mr Li's best option may be to focus on what Sea is good at doing. If it was listed in Singapore, it would already be larger than any of the companies in the Straits Times Index, which is led by banking group DBS and conglomerate Jardine Matheson. Sometimes exercising restraint is the best way to show strength. REUTERS