Southeast Asia's Grab to merge with SPAC at $30.4b valuation
Southeast Asia-focused ride hailing and local services platform Grab has agreed to go public in the US through a merger with a special purpose acquisition vehicle (SPAC) at an enterprise valuation of $30.4 billion.
It is set to become the largest merger with a SPAC globally and will facilitate liquidity events for multiple financial investors, among them SoftBank Vision Fund, Tiger Global Management, Hillhouse Capital, Coatue Management, China Investment Corporation, GGV Capital, and Vertex Ventures. Grab also has assorted strategic backers, from Didi Chuxing and Uber to Toyota, Honda, and Hyundai.
The company has raised nearly $10 billion to date across eight rounds. Prior to opening negotiations with the SPAC, it was raising a Series H round that was expected to amount to $6.5 billion and value the business at $10-14 billion. According to a presentation, investors had agreed to contribute $6.2 billion, although only $400 million of this was committed capital.
The SPAC in question is Altimeter Growth Corp, which was launched last year by US-based investor Altimeter Capital and raised $450 million. It will invest $500 million for a 1.3% stake in the merged entity. The SPAC sponsor will hold 0.3%. Sponsors typically receive a 20% stake in the SPAC – not in the merged entity – once it lists for a nominal sum. Altimeter has agreed to donate 10% of its sponsor shares to the GrabForGood fund, a $275 million philanthropic vehicle announced last week.
Moreover, Altimeter has committed up to $500 million more to counterbalance the impact of exiting SPAC investors – typically hedge funds – that opt to redeem their shares for cash on completion of the merger rather than hold in anticipation of future upside. This is in addition to leading a $4 billion private placement that will happen concurrently to the merger. Other participants include BlackRock, Morgan Stanley, Fidelity International, Mubadala Investment, and Sinar Mas.
The PIPE investors will take a 10.2% stake in the merged entity, while existing investors in Grab – who are rolling over positions worth $34.3 billion – will own 87.7%. SoftBank alone will have an 18.6% position, followed by Uber on 14.3%, Didi Chuxing on 7.5%, and Toyota on 5.9%. Anthony Tan, Grab’s co-founder and CEO, will have 2.2% but retain majority voting control.
The transaction gives Grab an equity valuation of $39.6 billion and will leave the company with approximately $4.5 billion in balance sheet cash to support growth. The forward enterprise value to net revenue multiple is 9.6x, based on projected revenue for 2022 of $3.27 billion.
“This is a milestone in our journey to open up access for everyone to benefit from the digital economy. This is even more critical as our region recovers from COVID-19. It was very challenging for us too, but it taught us immensely about the resiliency of our business. Our diversified super app strategy helped our driver-partners pivot to deliveries, and enabled us to deliver growth while improving profitability,” Tan said in a statement.
Having made its name in ride-hailing, Grab has concentrated on expanding its online-to-offline (O2O) offering in recent years. Services include food and grocery delivery, last-mile logistics, and an array of financial services, from electronic payments to insurance to investment products. Offering multiple services through a single app creates a flywheel effect as customers spend more money across a wider range of services, bringing down the overall user acquisition cost.
The company spun out its financial services unit into a separate entity earlier this year, raising $300 million in Series A funding led by Korea’s Hanwha Asset Management.
Grab operates more than 400 cities and towns across eight countries, and claims 25 million monthly transacting users, five million registered driver partners, two million merchant partners, and two million kiosk owners and agents. A total of 1.9 billion transactions were completed across the platform last year, with gross merchandise value (GMV) reaching $12.5 billion, more than twice the 2018 and surpassing pre-pandemic levels.
Grab expects its total addressable market to grow from around $52 billion in 2020 to more than $180 billion by 2025, noting that Southeast Asia’s population is twice that of the US yet online penetration of food delivery, on-demand mobility, and electronic transactions are a fraction of the US and China. The 2025 GMV projection envisages $28 billion from food delivery, $19 billion from ride-hailing, and $138 billion for digital wallet payments.
The company expects GMV to reach $34.2 billion in 2023, while adjusted net revenue hits $4.5 billion, up from $1.6 billion in 2020. Contribution profit – defined as adjusted net revenue minus various direct costs – came to $100 million last year compared to a loss of $1.2 billion in 2019. EBITDA was still negative, though the deficit narrowed to $800 million in 2020 from $2.3 billion in 2019. Contribution profit and EBTIDA are projected to hit $1.7 billion and $500 million in 2023.
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