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Executive summary

  • While the global pandemic had an immediate effect on M&A deals last year, signs of a return began late in 2020 and the rally shows no signs of slowing
  • Tensions in the US-China trade war made SE Asia a strategic target for M&A relating to supply chain alternatives
  • As SE Asian VCs approach end of fund life for their inaugural funds, experts expect an increase in exits and secondaries
  • SPAC investments had a record year in 2020. As SPACs now search for acquisition targets, large startups in SE Asia are increasingly attractive
  • Org design and talent management are key considerations for both M&A buyers and sellers that are intent on post-integration success

As a startup, the ultimate ambition is to reach an exit event - be that an IPO to become a publicly traded company, or an acquisition by a larger enterprise. In the case of M&A, beyond reaching consensus on the price of acquisition (i.e. the company’s valuation), the acquirer and acquiree must also navigate the nuances of integration, fusing two entirely different organizational structures and cultures under one roof.

Southeast Asia as a market is relatively nascent when it comes to startup exit events. The startup wave reached the region later than counterparts in the US and China, and companies are just starting to reach the scale needed to be attractive acquisition candidates. Thus, many in the startup ecosystem are unfamiliar about when - and whether - to start thinking about M&A, and how to maintain the company DNA after the deal is done.

Even outside of the startup space, other private businesses and family-owned firms are increasingly mulling the prospects of selling their assets to an acquirer in an attempt to upgrade the management team and facilitate succession planning.

In this article, we explore the forecast for M&A in 2021, how SPACs will impact exit events, and potential implications for talent strategies and the leadership landscape.

The COVID-19 Slowdown

In late 2019, Golden Gate Ventures, a leading venture capital firm based in Singapore, partnered with INSEAD to publish a report that analyzed and forecasted the startup exit landscape in Southeast Asia. Of its most surprising findings, the firm predicted at least 700 startup exits between 2023-2025, and forecasted that starting in 2022, there would be an increase in exits (via M&A or IPO) and secondaries (i.e. selling pre-existing investor commitments to other firms) catalyzed by early venture funds in the region approaching the end of fund life for their inaugural funds.

While many startups in the region might have initially aligned with that forecast and been on track for exit via acquisition or initial public offering in the coming years, the pandemic quickly extinguished market appetite for exits and put the prediction of an imminent critical mass of exit events in doubt.  In September 2020, it was reported that major merger and acquisition deals globally had been put on hold due to market volatility amid the COVID-19 crisis, with a decline of 25% in the first half of 2020, according to Euromonitor.

“When the pandemic hit, all deals were put on hold,” said Mark Strecker, Managing Partner of Sansa Advisors, a sell-side M&A advisory firm for private, typically venture-backed, companies, “Some deals, which tended to be in the early phase, were terminated because people could not travel.  With M&A deals you often want to visit management and locations as part of the deal process.”

Michael Lints, Partner at Golden Gate Ventures, added: “M&A initially took a hit as acquirers wanted to understand what the economic effect would be. Later in the year, M&A picked up due to availability of dry powder (including debt).”

Taking a more nuanced perspective on the landscape, it turns out that exit trends in 2020 varied by market. The Euromonitor report notes that the political and economic disputes between China and the US led to increased acquisition interest in Southeast Asian businesses, particularly in Vietnam, that support the global supply chain. “The ASEAN exit market in 2020 was characterized by cross border M&A (Chinese and US firms picking up regional assets), as well as regional acqui-hires and tuck-ins,” said Gavin Teo, General Partner at Series A investor Altara Ventures, “This stands in contrast to the US which saw an IPO boom in both tech and biotech. It also stands in contrast to China and Hong Kong which also had a large number of listings, especially in the back half of the year.”

M&A on the Rebound

As a result of ‘dry powder’ (i.e. undeployed investment capital) and a backlog of deals that were starting to form pre-pandemic, the market’s temporary hold on M&A activity quickly returned to form. In fact, global M&A activity rose 90% in the second half of 2020, ending the year with only a 3% decline in volume from 2019, according to a report by Refinitiv.

In Asia, experts are similarly optimistic about the increased acquisition appetite. “I highly believe that this year will be much different,” said Alvin Suryohadiprojo, founding partner of KARNA Partnership, an Indonesian law firm focusing on corporate and commercial law, “private equity and venture capital houses need to deploy their funds after a year of wait and see...not to mention businesses that were highly impacted by the pandemic will try to survive and one of the alternative measures is to invite investors to come in.”

“In 2021 we are predicting more public market activity in ASEAN,” noted Teo, citing potential events such as Grab’s IPO, Tokopedia and GoJek’s merger and IPO, and increased SPAC interest, “which may fuel regional M&A as newly public companies built in (and for) this region acquire other ASEAN companies to fuel growth.”

On an administrative level, the M&A uptick was also facilitated by corporate development departments and private equity firms adjusting to doing deals virtually. “As companies became more comfortable with meeting people remotely and were more secure about their own business, then deal activity picked up,” commented Streker, “Deal activity is now as busy as it was prior to the pandemic.”

Asia is SPAC-tacular

SPACs (Special Purpose Acquisition Companies, also called ‘blank check companies’) are currently en vogue as a mechanism for taking private companies public.  These entities have no commercial operations, and conduct IPOs to raise the capital needed to acquire or merge with a target business. Under current regulations, SPACs have two years from the date of their IPO to identify a target business and to acquire or merge with it.

According to SPAC data, a total of 248 SPAC IPOs took place in 2020, raising a record US$83.34 billion. 2020’s standout year represented over 40% of total gross proceeds raised by SPACs in all of the previous 17 years, and represented a 4x increase in the number of SPAC IPOs from 2019. At the time of this writing, there are over 300 SPACs currently looking for acquisitions around the world. Once a SPAC acquires a target (a process that’s called a ‘de-SPAC’), the acquired private company then becomes a public company, with a shareholder base comprised of the rollover shareholders, the SPAC sponsor, the SPAC’s public investors, and any private investors that participate in the deal through private investment in public equity (PIPE).

The growing swell of SPACs has reached historic highs. Last month, Goldman Sachs Group strategists wrote in a note, “Based on their 24-month post-IPO expiration dates, these SPACs will need to acquire a target in 2021 or 2022, nearly equal to the total enterprise value of SPAC deal closures during the last decade.”

The significant uptick in SPACs has led deal chasers to look beyond traditional channels, including previously untapped geographies such as Southeast Asia. “There is definitely a lot of interest from US based SPACS looking for quality deals,” said Strecker, “Some SPACs even have a mandate to focus on Asia and specifically the Southeast Asia landscape. Asian companies which are mature enough to go public will benefit from this influence and this will be a faster route to being a public company rather than doing an IPO.”

“SPACs are drawing attention to late stage private assets globally and investors like Peter Thiel have drawn that link to SEA specifically,” noted Teo, “In 2019, the average SPAC trust was US$230M and in 2020 it was US$400M, so these transactions are getting both larger and more frequent and hence it is an important financing trend to follow.”

Asia based institutions are also following suit and making strategic decisions to accommodate growing interest in SPACs. Asian investment giant SoftBank announced in December 2020 its plans to launch a tech-focused SPAC aiming to raise $525 million. Even Singapore Exchange (SGX) has indicated an openness to listing SPACs on its exchange, potentially as early as later this year.

Despite the current media attention devoted to SPACs, it’s important to view them as simply another type of investment vehicle and not a panacea for private company shareholder liquidity.

“It is important to put SPACs into context as another form of reverse public offering, which is a corporate transaction structure that has been around for decades,” says Teo, “The real litmus test of whether SPAC activity will drive M&A in Asia is actually the success of the de-SPAC process, when the public market sees evidence of sustainable listed companies being birthed from the ranks of private assets - which means we will need to see strong PIPE support for these SPACs as well as public retail investor appetite post-listing.”

The Talent Imperative

Given the wide spectrum of exit outcomes, there is no single rule that executives can follow to optimize their organization with an acquisition-ready talent strategy. That said, a thoughtful approach to organization design and the composition of the leadership team can have a huge impact on how quickly and whether a deal can take place.  

“A big factor in doing M&A deals is the quality of the team. Having a proven team which works well together and has a good track record is very important,” said Strecker, “M&A buyers want to see a team which has good division of roles and responsibilities and no single point of weakness. Having a company with strong leadership, which can run by itself with limited input from founders or senior leadership is a big plus. Culture is [also] very important and often a factor in M&A deals.”

Despite the importance of building a solid management team to attract potential acquirers, the fact remains that the core team of many companies that get acquired tend to vacate post-acquisition. A study by Wharton professor Daniel Kim found that “acquired workers are twice as likely to leave the firm – compared to regular hires with nearly identical profiles who are also hired into the same acquiring firm”.

In Southeast Asia, examples of immediate executive departures following acquisition include the CEO of Guavapass following acquisition by Classpass in 2019, the CMO of Shopkick following acquisition by Trax in 2019, and the Founder & CEO of Smartly following acquisition by VinaCapital in 2019 (and the company’s subsequent dissolution less than a year after its acquisition).

“Research has shown that most M&A efforts are not successful and in fact are value destructive. This is because it takes a lot of very intentional and hard work to integrate teams, cultures, product roadmaps and customers. Some founders like Kevin Systrom and Mike Krieger from Instagram stayed six years after Facebook acquired them. Others leave sooner. At the end of the day it all comes down to people. My experience is that most founder-led companies are led by leaders who want to be founders again,” said Teo.

“People often focus on the ‘dealflow’ part of M&A. However, I believe that for successful M&A the ‘peopleflow’ is even more important,” remarked Teo, “Specifically, talent management of the acquiree post acquisition is critical. If you look at generational businesses like GE that have built a track record of acquiring and integrating companies and turning them into major business units, they have a culture and playbook known as the “GE Way”. This of course cuts both ways and doesn’t speak to all founders in their consideration to exit to GE. However, GE’s track record of successful acquisition and inorganic growth is well documented and probably superior for creating wealth for GE shareholders. My sense is that much of this is due to intentional cultural and people management, where assimilation is a core corporate development expertise (vs. acquiring startups to build a constellation of individual BUs each with their own mini-CEOs). Asavi is building some very important tools to track and manage ‘peopleflow’ for the purpose of managing these challenges to more optimal outcomes. You should follow them!”

Special thanks to Gavin Teo, Michael Lints, Mark Strecker, and Alvin Suryohadiprojo for their contributions to this article.


Asavi is a market intelligence tool for talent and leadership teams, on a mission to become APAC's leading resource for organizational insights. Sign up today to join our waitlist!