Deal making has been running at a solid pace in Indonesia so far this year. In Q1 2023, 26 deals were recorded—a gain of 18% on the previous quarter by volume—for a total of US$2.2 billion. Value was down by 57% over the same period but almost exactly matched the market’s performance in Q3 2022 and remains above pre-pandemic activity levels.
Positive economic conditions are giving parties the confidence to transact. Indonesia's GDP grew by just over 5% in the first quarter, beating forecasts, with strong domestic demand offsetting a decline in export revenues from lower commodity prices. The government is expecting GDP growth to continue at 5.3% this year, supported by public spending and easing inflationary pressures. The country’s consumer price index came in at 4.3% in April, down from 5% in March and marking the lowest rate seen since May 2022.
Fintech growth opportunities
Consumer spending by Indonesia’s 282 million inhabitants accounts for about half of the country’s economy and is driving growth in its flourishing fintech sector which keeps investors closely engaged.
An estimated 234 million Indonesians use the internet, and the country’s youthful, tech-savvy population represents a significant market for fintech service providers. As technology becomes more accessible, the demand for innovative financial solutions continues to rise. This is compounded by the country’s dispersion across a diverse archipelago, which limits the reach of traditional banking services and has created a massive growth opportunity for startups leveraging on the availability of mobile apps to bridge this gap.
For example, in May, DigiAsia Bios combined with the Nasdaq-listed special purpose acquisition company (SPAC) StoneBridge Acquisition Corp in a deal that valued the business at US$500 million, making it the largest so far this year according to Mergermarket. The company—whose customers include Starbucks, Home Credit Indonesia and Adira Dinamika Multi Finance—provides embedded finance solutions (digital wallets, payment systems, cash management functions, etc.) to enterprise partners. With the fresh investment, it is looking to expand its operations to Vietnam, Cambodia and the Philippines, and acquire similar businesses in Southeast Asia to bolster its revenue.
Digital credit platform Kredivo initially also wanted to secure a SPAC deal of its own to fund its expansion but halted those plans last year. However, in March, the startup scored a $270 million Series D round led by Mizuho Bank, a subsidiary of Mizuho Financial Group, and joined by existing investors including Square Peg Capital, Jungle Ventures, Naver Financial Corporation and Openspace Ventures. The Jakarta company’s services are used by millions of customers in Indonesia and Vietnam seeking instant credit financing for ecommerce, offline purchases and personal loans. Its latest funding round, the second largest in Indonesia so far in 2023 after DigiAsia Bios, will support the launch of its neobank brand Krom.
Thanks largely to these two deals, technology, media and telecommunications (TMT) rose to the top of the sector leaderboard in Q1 2023 with US$940 million in M&A activity—a 43% share of all dealmaking value in that period. TMT also led on volume, with one in every four deals in the first quarter this year attributable to the industry.
Vast reserves
The energy, mining and utilities (EMU) sector also played a big part in recent M&A deal making in Indonesia. Australian miner Nickel Industries raised equity financing via a share placement in March to fund its acquisition of two companies, including a US$270 million purchase of a 10% stake in PT Huayue Nickel Cobalt, a project in the Indonesia Morowali Industrial Park. The deal coincided with a US$75 million investment for a 10% interest in the Oracle nickel project, upping its holding in the operation to 80%.
The deal is part of a broader transformation strategy by Nickel Industries, away from its historical focus on the stainless steel market, with the aim of becoming a leading producer of “Class 1” battery-grade nickel to further diversify its sales into the rapidly growing electric vehicle (EV) battery market.
Alongside Australia, Indonesia has the world’s largest nickel reserves, with an estimated 21 million tons of ore in the ground. Nickel is used in lithium-ion batteries to increase their energy density, thereby improving their performance and durability. This is important for EVs as it allows them to travel further on a single charge and means the batteries lose their charge less quickly. The International Energy Agency estimates that around 10% of nickel demand was for EV batteries in 2022, five times higher than in 2017 driven by the surging adoption of EVs, with 10 million sold last year and a further 14 million expected to be purchased by consumers this year.
Another large and notable EMU transaction, valued at US$208 million, PT Chandra Asri Petrochemical (Chandra Asri) has bought controlling stakes in PT Krakatau Daya Listrik which generates, transmits and distributes electricity and PT Krakatau Tirta Industri, which operates water and wastewater treatment facilities. Indonesia’s fast-growing population poses issues relating to energy requirements, water scarcity and pollution issues which are especially evident in Jakarta. Through these acquisitions, we can see how Chandra Asri is positioning itself to play a fundamental role in addressing these challenges and other companies may follow suit given the increasing trend in green and sustainable investment in the region.
Looking ahead
Everything points toward a plentiful year for Indonesia’s M&A market. Deals thus far may have been smaller but volume has been healthy and the country is in a far stronger position than much of the rest of the world.
Given the country’s reliance on domestic demand, especially in the face of slowing global GDP and exports, continuing efforts by the government to bring inflation under control will be critical. In an ongoing attempt to cool prices and ease the burden on household budgets, the central bank has raised interest rates and is selling government bonds to absorb excess liquidity in the economy. So far, the outlook seems good. The short-term economic outlook is robust and the long-term view even brighter.
