Until the mid Q3 of 2024, Indonesia's start-up industry has continued to face the challenge of a "tech winter", whereby many start-up companies experiencing a shortage of capital injections due to a decline in investors' interest. These conditions may lead to several consequences and efficiencies in business activities, including business pivots, massive layoffs, significant financial losses, cease of business operation, even bankruptcy.
Q2 of 2024 recorded several major layoff events, including at start-up companies like Tokopedia, following its recent acquisition by one of the world's largest social media platforms, TikTok. This trend is expected to continue through Q4 of 2024 and possibly into early 2025, as a result of the tech winter condition.
In this current tech winter, tech start-ups are tested on their resiliency and they need to adjust their business moves in order to overcome these challenges. One strategy that tech companies have continued to employ since 2023, is through a merger and acquisition ("M&A") transaction as it takes a shorter period and simpler procedure than the initial public offering (IPO) to raise the funding. As of September 2024, there are 19 M&A deals, with total transaction value of USD1.64 billion or IDR24.88 trillion with the highest transaction value of USD 70 million (Dekoruma's acquisition by Bibli). This represents a significant increase of 111% compared to that of 2023, as highlighted in our previous article on https://www.mondaq.com/corporate-and-company-law/1462006/merger-and-acquisition-trends-among-start-up-companies-in-2023 Mergers and Acquisition Trends Among Start-up Companies in 2023.
Note that in addition to tech winter condition, M&A deal has become the option for expanding the business or addressing the regulatory changes. As of September 2024, two thailand companies have acquired tech start-ups for expansion of business in Indonesia. These companies, Roojai Group and Sunday, acquired Lifepal and KSK Insurance Indonesia, respectively. Both acquired companies are in insurance business. While due to the regulatory change, the China company, Tiktok, acquired Tokopedia. In addition, only one local tech start up company, Cetta, acquired EAS.ai, an AI startup company based in Singapore.
Having regard to the above, we have provided below, the compilation of M&A deals concluded as of the mid third quarter (August) of 2024.
- M&A Deals of Tech Companies in 2024
As of the mid-third quarter (August) of 2024, M&A transactions among tech start-ups are as follows:
- Commentary on Tech Startup M&A Deals 2024
The increase of M&A transactions reflects how start-up companies cope with ongoing challenges in the tech sector, particularly amid what is referred to as a "tech winter" where investors sentiment have become more cautious, and capital injections are harder to secure. These challenges have led many tech companies to struggle with cash liquidity issues, affecting their day-to-day operations, and at times, forcing them to consider layoffs, or restructuring their business models as the alternative means to remain financially viable.
An M&A deal has become one option to overcome the challenges to consolidate the capital between two companies, raise the funds, and making cost efficiency at the same time. In addition, an M&A deal is the alternative for expanding the business and complying with the laws and regulations.
This year is also marked by three major political events that have influenced M&A activities in Indonesia. The most significant events would be the General Election on 14 February 2024, covering both Presidential and legislative elections, the Presidential Inauguration on 20 October 2024, followed by the appointment of cabinet ministers, and the Regional Elections scheduled for 27 November 2024 across 545 regions. These political events may contribute to the market to take on a "wait and see" approach, as there will be significant changes of government policies, including those concerning the economy.
In response to these political and economic pressures, the investors have shown a tendency to hold back on significant transactions, preferring to wait until the new government administration that just took office warmed their seats, before making substantial commitments or investments until the end of this year.
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