Singapore-based ride hailing service Grab confirmed today it is acquiring US-based peer Uber’s Southeast Asian business in a deal that will give the latter a 27.5% stake in Grab, giving a clearer picture of the direction the sector is heading.
Founded in 2012 as GrabTaxi, Grab operates an on-demand ride platform spanning taxis, motorcycles, private cars and carpooling, with a presence in 195 cities across Singapore, Indonesia, Malaysia, Thailand, Vietnam, the Philippines, Myanmar and Cambodia.
Uber has been operating in Southeast Asia for a while and, after selling its Chinese business to Didi Chuxing in a similar deal in April 2016, pledged to redouble its efforts in the region, but it has failed to keep up with Grab’s locally-focused and more diverse service, which also takes in mobile payment.
In addition to the Didi Chuxing sale, Uber made a similar deal with Russia-based Yandex Taxi in July 2017, merging their businesses to form an entity in which it holds a 36.6% stake. Dara Khosrowshahi, Uber’s chief executive, will join Grab’s board of directors in conjunction with the deal.
Khosrowshahi said: “This deal is a testament to Uber’s exceptional growth across Southeast Asia over the last five years. It will help us double down on our plans for growth as we invest heavily in our products and technology to create the best customer experience on the planet.”
The latest transaction will effectively involve Grab adding not only Uber’s ride services but its local food delivery operations to a range of services that also includes package delivery and financial services. Uber’s Singapore and Malaysia-based UberEats activities will allow GrabFood to launch in those countries, and the latter, so far only available in Indonesia and Thailand, is expected to be available in all Grab’s markets by the halfway point of 2018.
The deal comes at a time when Grab is looking to further expand its services, adding a GrabCycle bike sharing service to combat local offshoots formed by China-based Mobike and Ofo. It is also widening its financial services offering to encompass microfinance and insurance.
Grab co-founder Tan Hooi Ling said: “We will rapidly and efficiently expand GrabFood into all major Southeast Asian countries in the next quarter. We are going to create more value for our growing ecosystem of consumers, drivers, agents – and now merchants and delivery partners.
“GrabFood will also be another great use case to drive the continued adoption of GrabPay mobile wallet and support our growing financial services platform.”
Perhaps more importantly, at a time when voices calling for online giants like Facebook and Alphabet to be broken up are getting louder, the deal is another indication of how the cash-guzzling on-demand ride sector is consolidating under a relatively small number of owners and raises questions as to whether customers will be best served in regions where there is increasingly an effective monopoly on the sector.
Southeast Asia may not be in that position quite yet – Grab has a well-funded competitor in the shape of Go-Jek – but the industry worldwide is increasingly coming under the joint ownership of three players: Uber, Didi Chuxing and SoftBank, the Japan-headquartered telecommunications and internet group that holds substantial stakes in the former two as well as Grab.
Grab had raised $1.4bn from investors including SoftBank – which initially paid $250m for a reported 40% stake in 2014 before reinvesting in subsequent rounds – as well as travel agency Qunar, automotive manufacturer Honda and a host of institutional investors, before Didi Chuxing invested $2bn in July 2017 as part of a series G round also backed by SoftBank that is expected to close at $2.5bn.
SoftBank and Didi Chuxing were shareholders in Brazil-based 99 before the latter agreed to an acquisition by Didi Chuxing in January this year. Uber and Didi Chuxing already owned shares in each other’s companies after the 2016 deal, before SoftBank paid more than $7bn for a 15% stake in Uber together with two board seats, also in January.
Reports the same month stated Rajeev Misra, CEO of SoftBank Investment Advisors, believed Uber should pull out of several regions in order to consolidate operations in its key markets, and while the usual denials were pulled out in the aftermath, that does indeed seem to be what is taking place.
There is nothing inherently suspicious about that – Uber has spent huge amounts of money in countries with established local operators and is still reportedly a long way from profit, and a more precise focus could help with that – but it is also unarguably true that a move removes key competition for SoftBank’s other portfolio companies in those regions.
Of course, SoftBank and Didi Chuxing also notable investors in India-based Ola, which could well be the next company to strike a deal with Uber that involves a consolidation. They are also both shareholders in Uber’s only real North American competitor, Lyft, though a merger between those two would likely face real anti-monopoly measures, especially in a current climate where the Qualcomm-Broadcom and CNN-AT&T mergers have recently both been killed by the government.