Do startups need M&A advisory firms to raise money or exit?

As Southeast Asia’s early cohort of tech startups reach maturity, the region is starting to see an increase in exits.

The number of investors is also increasing as new funds enter the market. The more investors there are, the higher the chances of follow-on fundraising and acquisitions. This means more business for brokers, ranging from individuals and boutique firms to the largest investment banks.

Marcus Yeung, founder and CEO of SEAbridge Partners, a tech-focused boutique investment bank in Asia, shares this optimism.

SEAbridge, which also provides advisory services for fundraising as well as mergers and acquisitions, has worked on roughly 10 M&As in the last five years, over half of which involved tech companies. But while these transactions currently make up 25% of the firm’s business, Yeung expects this to go up to 50% in the future.

One reason for this surge in M&A deals is that the earliest batch of tech startups in Southeast Asia – founded around seven years ago – have reached a size and age when they’re of strategic value to investors that want to buy them, says Yeung.

See: Southeast Asia startup scene shows signs of maturing as 2018 funding hits new high

According to Cento Ventures’ Southeast Asia Tech Investment in 2018 report, tech companies within the region snapped up the majority of the Southeast Asian businesses last year.

From 2013 to 2018, key acquirers have come mostly from Southeast Asia and Asia Pacific, with Singapore-based companies making the most number of deals and China-based companies spending the largest amounts of money.

The acquisition activity coming from Singapore makes sense, given its role as Southeast Asia’s technological hub and its attractiveness to tech startup founders. Companies in the city-state also need to push beyond its borders to grow because of its small market size – it only has a population of around 5.6 million. The country is also home to many of the region’s most funded digital startups.

Typically, there are two types of companies that acquire startups. One, as mentioned, are technology companies: think cash-rich industry leaders like Grab, Gojek, and Sea Group. These buyers are usually pursuing strategic investments, such as companies that possess the tech necessary to further develop their product range.

Take for example Grab, which aims to become a regional super app. Critical to this strategy is enabling the use of GrabPay – the company’s mobile wallet – to pay for different services, such as food delivery and ride-hailing. To that end, the company has acquired Indian payments startup iKaaz and Indonesian ecommerce and payment platform Kudo. Grab is reportedly planning to make six tech acquisitions or investments this year.

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