Grab-GoTo merger would be an all-round win

Sharing a ride. Grab and GoTo ought to merge. A union of the Singaporean and Indonesian food delivery-to-ride-hailing companies, currently valued at $18 billion, is "inevitable", Macquarie's sales team told its clients in a note published in February. GoTo says it's not in talks about a deal but it's easier than ever to see the logic of such a Southeast Asian combination.

Shares of both SoftBank Group-backed firms have taken a beating. After achieving a $40 billion valuation in a 2021 deal with a U.S. special-purpose acquisition company, Nasdaq-listed Grab is worth $13 billion. GoTo's shares in Jakarta are 80% below their IPO price in 2022.

Both firms have cut costs, but they remain unprofitable. The 12-year-old Grab, also backed by Uber, is in better shape thanks to its dominance in Singapore, the region's richest country. It will churn out an annual net profit in 2025, per estimates compiled by LSEG. GoTo is forecast to eke out a profit in 2026 but even then the margin won't be impressive.

A truce in Indonesia would turn fortunes around faster and lay the path to stronger margins. The emerging market could prove lucrative as incomes for its 270 million-strong population rise and pricing power of the firms improves. Grab and GoTo, though, have for a couple of years been too hooked on a battle to win and retain consumers and partners, spending heavily on incentives to do so. Macquarie says cost savings from putting the duo together could be up to 50%.

Grab would claim the driving seat in any deal. It's larger and operates in eight markets, whereas GoTo is Indonesia-focussed and sold a majority stake in its e-commerce division to TikTok this year. Plus, Grab has net cash of $5.2 billion, the same as GoTo's market value.

They could overcome concerns about forming a monopoly. Authorities in Indonesia impose a pricing band for ride-hailing services, and GoTo is tiny in Singapore. Indonesia may not want to see a company that's akin to a national tech champion being swallowed, but global investors show little sign of warming back to the region's startups.

A structure that allows GoTo to retain its local brand while sharing a ride with Grab in its regional growth might ensure a smooth, and highly profitable, journey.

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Indonesia's GoTo told the local exchange on Feb. 13 that it was not having any merger discussion with Singapore-based Grab. In a sales note distributed to clients in the same month, Macquarie said a merger of Grab and GoTo was "not only plausible but inevitable and should be done this year".