3 Takeaways on Grab’s SPAC IPO April 27, 2021
Singapore-based Grab and Southeast Asia’s most valuable unicorn backed by SoftBank is set to finalise its listing in New York. This is said to be the biggest-ever US listing through a SPAC or special purpose acquisition company, if successful. SPACs are shell companies that help private companies list without going through the traditional IPO process.
Before listing, Grab will first merge with Altimeter Growth Corp. (AGC.US), the SPAC, in a deal that is valued at US$40bn. This is expected to close in July. Altimeter has committed to a 3-year lockup period on its sponsor shares.
Grab will trade on Nasdaq under the ticker, “GRAB”.
Here’s the lowdown on Grab’s IPO #PhillipIPOWatch:
1. Super-app Grab
Grab was founded in 2012 with the mission to drive Southeast Asia forward by creating economic empowerment for everyone. It offers an array of services, from transportation to food, grocery and parcel deliveries. In recent times, it has gone into digital payment services via its all-in-one app. Grab’s taxi, private-hire, GrabHitch and other services can be found in 400 cities in eight countries: Singapore, Malaysia, the Philippines, India, Thailand, Vietnam Indonesia and Cambodia.
Grab’s acquisition of Uber’s Southeast Asian businesses thrust it into the global spotlight in 2018. By 2020, it had 25m monthly users who completed 1.9bn transactions. Grab partners 5m registered drivers, 2m merchant partners and 2m GrabKios agents. It takes pole position in food delivery, mobility and digital-wallet payments by gross merchandise value in Southeast Asia. Gross merchandise value is used in the online retail industry to indicate total merchandise sold through a marketplace.
With one swipe, Grab’s users can tap its super app to hire anything that rides on wheels, including taxis, private cars, bicycles and bike taxis. As Grab has forayed into multiple consumer services such as hotel booking, on-demand video streaming and ticket purchasing, these services have also been launched on its super app. Grab clearly intends to meet more and more of its users’ everyday needs.
2. Grab’s profitability target
Grab’s adjusted net revenue was US$1.6bn in 2020, up 70% YoY. This was during the pandemic, when ride-hailing practically dried up and delivery services had to come to the rescue.
Grab’s delivery services, in fact, have been growing the fastest since 2018, by a CAGR of 203%. The next to follow was financial services, with a 102% CAGR. Financial services are set to grow the fastest in the next three years, as new businesses like merchant working-capital loans and driver insurance gain traction.
In terms of profitability, mobility - Grab’s original ride-hailing business that put it on the map - started achieving positive EBITDA in Q4 2019. Delivery is expected to break even at the EBITDA level in the second half of this year.
Grab expects its net revenue to rise to US$4.5bn in 2023, which would help turn the group profitable at the EBITDA level.
But according to Tech In Asia:
Grab’s EBITDA margin in 2020 was -47%. Uber’s EBITDA margin in 2018 – the last full year before its US listing in 2019 – was -18%.
To reach profitability in 2023, Tech In Asia believes Grab would have to scale up its financial services significantly and improve its mobility and delivery margins.
3. Grab’s unique selling points
a. Large mobile user base
In a 2020 report, Google, Temasek and Bain & Co. estimated that Internet users in Southeast Asia had reached 400m. This user base was responsible for bumping up online gross merchandise value to US$100bn. Food delivery, e-commerce, online payments, online media and ride-hailing took the lead. As a super app combining multiple consumer services, Grab has been able to tap this user base effectively.
b. Digital banking licence in Singapore
Grab teamed up with Singtel to pick up a prized digital banking licence in Singapore in 2020. Grab has been driving innovation in financial services with its GrabPay, GrabInsure and GrabFinance. Today, it has extended to Pay Later, a post-paid and instalment service for people to pay for Grab services at month-end without additional interest or costs.
Users have been reaping the benefits and convenience of Grab’s core service: ride-hailing. These include easy booking, insured drivers, rider ratings and confirmed waiting time. First and foremost, Grab ensures reliability by making sure its drivers are licensed and insured. Its 5m driver partners are bound by its terms and conditions. These include the need to register as a local business, convert cars to commercial usage, sign up in person and purchase insurance to cover passengers and their belongings. Second, Grab charges flat rates upfront before a ride starts. This enables customers to choose the best ride. Third, Grab provides a rating platform for customers to offer feedback after their rides.Why watch this IPO?
Grab is Southeast Asia’s biggest start-up heading for a bumper US listing.
Grab will go public in New York in partnership with Altimeter Growth Corp.
Altimeter Growth Corp. is the Nasdaq-listed (AGC.US) special purpose acquisition company of Silicon Valley venture-capital firm, Altimeter Capital Management. Altimeter Capital manages over US$15bn of assets.
While SPACs are not new, they’ve become hot investment vehicles on Wall Street in recent times. They’ve also been making inroads in Asia, with six regional-focused SPACs collectively raising US$2.7bn so far in 2021.
To sum up, Grab is looking for a way to achieve sustainable growth in the digital economy. There remain risks that the deal might not go through, as the SPAC merger is still subject to regulatory approval. Grab is separately considering a secondary listing on the SGX, closer to home.
With such a high-profile listing, we can be sure of more exciting developments. Stay tuned as we bring you updates nearer its listing date!
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Follow #PhillipIPOWatch market series for more upcoming IPOs.Sources: 1. https://www.cnbc.com/2020/11/10/southeast-asia-40-million-new-internet-users-in-2020-report-finds.html 2. https://www.grab.com/sg/press/others/grab-go-public-in-partnership-with-altimeter/ 3. https://www.techedt.com/everything-you-need-to-know-about-grab/ 4. https://www.straitstimes.com/business/companies-markets/grabs-bumper-us-listing-what-you-need-to-know-about-south-east-asias 5. https://www.sec.gov/Archives/edgar/data/1823340/000114036121012518/nt10022857x2_ex99-2.htm 6. https://www.businesstimes.com.sg/companies-markets/grab-mulls-secondary-listing-in-singapore-home-market-sources 7. https://www.reuters.com/business/finance/grab-southeast-asias-biggest-startup-set-bumper-us-listing-2021-04-13/ 8. https://www.cnbc.com/2021/03/26/spacs-growing-interest-in-asia-toward-blank-check-companies.html 9. https://www.grab.com/sg/press/tech-product/grab-introduces-four-new-services-in-singapore-in-its-super-app/ 10. https://www.techinasia.com/learned-grabs-latest-financials 11. https://www.bain.com/insights/e-conomy-sea-2020/ 12. https://www.ig.com/en/news-and-trade-ideas/grab-to-list-in-the-us-via-largest-ever-blank-cheque-deal-210409
About the author
Yanlin graduated from Nanyang Technological University in 2019 with a master’s Degree in Accountancy. She is an Equity Dealer in the Global Markets Team and specialized in HK, US, SG, and China markets.