Mergers and Acquisitions: The New Game in Asian Retail

The M&A Wave Transforming Asian Retail

The Asian retail landscape is undergoing a seismic shift, driven by a wave of high-profile mergers and acquisitions. Just recently, Canadian convenience store giant Alimentation Couche-Tard made an informal offer to acquire Seven & I Holdings, the Japanese owner of 7-Eleven. If successful, this cross-border deal could significantly expand Couche-Tard's presence in Asia and reshape the convenience store sector in Japan.

M&A in Asian retail is not new. In fact, we have seen a flurry of activity starting in 2020 across major Asian markets (China: JD acquiring Dada Nexus, Alibaba acquiring Sun Art Retail, SEA: GoJek & Tokopedia merging to form GoTo, India: Flipkart acquiring ClearTrip, Tata with BigBasket, and Reliance acquiring Dunzo and Fynd, etc.).

Not just M&A, partnerships and alliances among significant players are back on the table. A good example is the recent reconciliation between South Korean e-commerce giant Coupang and food conglomerate CJ Group—an unexpected reunion that ended a 20-month hiatus sparked by a pricing dispute. Meanwhile, we see multiple markets ripe for consolidation, with speculation about potential mergers or acquisitions involving major players.

These developments underscore a broader trend across Asia: mergers and acquisitions are becoming pivotal in shaping the future of commerce. From e-commerce behemoths expanding their reach to traditional retailers embracing digital transformation, companies are leveraging M&A to accelerate growth, fuel innovation, and rapidly build crucial capabilities. Even technology vendors are actively participating in this frenzy, acquiring specialized agencies and consultancies to bolster their offerings and stay ahead of the curve.

In this blog post, I explore the multifaceted role of M&A in the Asian retail ecosystem, examining how it catalyses growth, fuels innovation, and enables companies to acquire essential capabilities rapidly. We'll also delve into the increasing prominence of technology vendors in this landscape and the implications of their acquisitions for the future of retail.

M&A as a Growth Catalyst

In the fiercely competitive Asian retail market, achieving scale and expanding market share is paramount. M&A provides a strategic pathway for companies to rapidly achieve these objectives by acquiring existing players or merging with complementary businesses. A prime example is Grab's acquisition of Uber's Southeast Asia operations in 2018. This landmark deal consolidated the region's ride-hailing and food delivery markets, propelling Grab to a dominant position and intensifying competition with other players like GoTo and Foodpanda.

Similarly, the formation of GoTo in 2021 through the merger of Gojek and Tokopedia created Indonesia's largest tech company, combining ride-hailing, food delivery, e-commerce, and financial services under one roof. This strategic move not only accelerated the growth of the digital economy in Indonesia but also intensified competition with regional giants like Sea Limited and Grab.

In India, Reliance Retail's ongoing pursuit of Future Group's retail assets and the Tata Group's acquisition of BigBasket exemplifies the ambition of conglomerates and traditional retailers to expand their footprint and solidify their market position. Once completed, the Reliance-Future Group deal could give Reliance Retail a dominant position in India's organized retail market. Meanwhile, the Tata Group's acquisition positions them to capitalize on the growing demand for online grocery shopping and compete with established players like Amazon and Flipkart.

These are great case studies on how M&A has served as a catalyst for growth in the Asian retail market. It enables companies to quickly access new markets, customer bases, and capabilities, thus accelerating their growth trajectory.

Fueling Innovation and Fast-tracking Capabilities

In the last few years, retailers have been racing to innovate and rapidly acquire new capabilities to stay ahead of the curve. M&A actually fast-tracks this process and serves as a powerful tool for companies to achieve both these objectives—driving innovation by infusing new technologies and ideas while also enabling the swift acquisition of crucial skills and market access!

In China, JD.com's acquisition of Dada Nexus strengthened its last-mile delivery capabilities, particularly for groceries and other on-demand items. In addition to fueling innovation, M&A has allowed companies to fast-track the acquisition of essential capabilities. In India, Zomato's acquisition of Blinkit and Reliance investments in Fynd and Dunzo shows how companies are strategically acquiring/investing in startups to strengthen their capabilities in logistics, quick commerce, and various other sectors. In Indonesia, Bukalapak's series of acquisitions, including a logistics company, a payment gateway, and a digital marketing agency, further demonstrates this point.

These examples highlight how M&A has served as a catalyst for both innovation and the rapid acquisition of capabilities in the Asian retail market. By acquiring or merging with companies possessing complementary technologies, skills, or market access, Asian businesses have been able to quickly adapt to the changing landscape, enhance their offerings, and gain a competitive advantage.

The Role of Technology Vendors

While this saga plays out among retailers, the technology vendors are not far behind. Through strategic acquisitions, these vendors are expanding their capabilities and consolidating their position in the market. For instance, Salesforce's acquisition of Demandware allowed it to create Salesforce Commerce Cloud, a leading e-commerce platform.

Not to be left behind, Adobe, by acquiring Magento Commerce, further strengthened its digital experience offerings, providing retailers with a comprehensive suite of solutions for building and managing online stores, personalizing customer experiences, and analyzing customer data.

Furthermore, mid-size commerce agencies and retail tech consultancies have become hot targets for acquisitions. Valtech's acquisition of Kin + Carta is a prime example, bringing together expertise in experience innovation, digital engineering, cloud, data, and AI to deliver end-to-end digital transformation solutions for retailers. Similarly, Accenture's acquisitions of commerce agencies like The Stable and Tambourine underscore the growing demand for specialized expertise in commerce transformation.

As retailers increasingly look to develop new innovations, their technology partners are looking to not only build their own capabilities but also acquire the talent and expertise of specialised agencies to offer a wider range of services to their clients. This trend will likely continue as the retail landscape becomes increasingly complex and competitive, requiring retailers to partner with technology vendors that can provide them with the comprehensive solutions they need to succeed.

Emerging Trends and Future Outlook

The Asian retail landscape continues to evolve rapidly, with new trends and technologies constantly emerging. The rise of Gen AI, quick commerce, hyper-personalisation, social commerce, and the increasing importance of fintech and logistics are just a few examples of the forces shaping the industry's future.

All this leads to a relentless pursuit to innovate & grow amongst retailers, which in turn is fuelling the M&A activity in the region. Companies will seek to acquire startups and established players with expertise in these emerging fields to stay ahead of the curve and quickly integrate these capabilities into their existing operations.

However, deciding between organic and inorganic growth through acquisitions is not always straightforward. Acquisitions come with their own challenges of integration and cultural alignment. Companies must carefully weigh the pros and cons of each approach, considering factors such as time-to-market, cost, risk, and the potential for synergy. No one wants a situation where there is a 'square peg in a round hole'.

The future of Asian retail is undoubtedly bright. Still, it will be shaped by companies that can successfully navigate the complexities of M&A and leverage it as a strategic tool for growth and innovation.