Souq.com: a mythical beast?
A bid for UAE ecommerce company Souq.com is likely just a couple of weeks away, as Amazon has finished its due diligence process and the deal is “very much on”, said a source close to the company.
In early January, Bloomberg reported that India’s Flipkart was in the consortium with Amazon and both were walking away. The source said this was not true, and Amazon had made a non-binding offer in late 2016 to gain exclusivity in acquisition talks with the company.
Furthermore, Flipkart was never part of the original deal and is occupied with raising its own $1 billion round.
CEO Ronaldo Mouchawar was not available to comment, and Amazon and Samih Toukan, chairman of Souq.com parent company Jabbar Company, declined to comment.
The last round of $275 million, announced in February last year and raised largely from existing investors, gave Souq.com an estimated value of $1 billion. Souq.com has raised a total of $425 million in investments.
The benefits of the deal for Amazon would be acquiring Souq.com’s customer base and market share in the UAE and Egypt, the two markets where Alexa, a global web traffic and analytics firm owned by Amazon, indicates Souq.com is ahead in terms of website traffic.
These are also the largest and third largest ecommerce markets in the region, according to Payfort’s 2016 State of Payments report. Souq.com has dedicated stores for the UAE, Egypt, Saudi Arabia and Kuwait and ships to Jordan, Bahrain, Qatar, Oman and Lebanon.
According to the Alexa data Amazon is the more popular site in Souq.com’s other markets, including its largest market Saudi Arabia.
The two businesses are often compared but are in fact not alike. Amazon was primarily a book and music seller well in the 2000s, despite opening the gates to other products in 1998 (it was founded in 1995). Today Amazon has branched out into AI-based home assistants, drone delivery and a rival service to Netflix, where Souq.com is still an electronics seller first, as evidenced by their tech-heavy homepage.
Last year CEO Ronaldo Mouchawar told Wamda they’d looked at providing a cloud-based product like Amazon Web Services, but the challenges in the Middle East required them to keep building basic infrastructure.
Is there a market for billion dollar tech companies in MENA?
Any deal with Amazon could still fall over.
But there are companies in the Gulf large enough to absorb an acquisition of Souq.com’s size, says Pervez Ahktar, regional managing director at the law firm Freshfields Bruckhaus Deringer LLP.
Companies such as mall-operator Majid Al Futtaim could handle a billion dollar acquisition — indeed, that company’s CEO Alain Bejjani was quoted praising Souq.com in January — and last year Gulf M&A saw at least three billion-dollar deals, the largest of which was National Bank of Abu Dhabi’s $14.8 billion takeover of First Gulf Bank.
Ahktar said he’d not seen much activity in the tech sector yet, because few of those companies were mature enough for acquisition.
“In terms of ecommerce and online businesses I think we’re going to see more activity as historically there’s been very little penetration in that space in the Middle East,” he said. “I do expect to see activity in this sector in the next 12–18 months.”
The 18-country MENA startup ecosystem has only been heavily active for six years, led by entrepreneurs in Jordan and the UAE who were mobile for several years before that.
According to internal Wamda data, there have been 41 acquisitions of tech startups or former tech startups in the Middle East and North Africa since 2009. Of those, nine were ecommerce companies. The second most popular industry was media, with six acquisitions.
There have been four over-$100 million acquisitions (as opposed to a majority stake purchase, such as the sale of 85 percent of Fawry for $100 million in 2015).
The first of the large deals was Souq.com’s parent Maktoob, bought by Yahoo in 2009 for $164 million.
The others were:
- Internet service provider Linkdotnet Egypt in 2010 for $130 million
- Food delivery startup Talabat in 2015 for $170 million
- Advertiser network Media.net in 2016 for $900 million
A unicorn is a tech company worth more than $1 billion, so called because they too are supposed to be mythical. MENA has two, Souq.com and Careem, and both are from the UAE.
Room for two?
Arzan VC senior investment manager Laith Zraikat says the entrance of Noon, the $1 billion newcomer backed by billionaire businessman Mohamed Alabbar that was announced two months before Souq.com revealed its ‘unicorn round’, is highly relevant to the sale.
Zraikat says the prospect of a billion dollar deal is based on certain assumptions.
“They are based on the logic that big companies expand into new markets or verticals by acquiring the market leader or at least a player who has achieved considerable traction and solved a lot of problems and laid out the groundwork,” he told Wamda.
However, that isn’t the norm in MENA and “conventional wisdom in the region seems to be ‘don’t join them, beat them’”, the apparent rationale for Noon.
The sheer amount of money behind Noon, although causing surprise and skepticism, indicates that locals at least think the regional market has potential for one more billion dollar ecommerce player.
“The [Noon] owners’ decision to spend $1 billion to build it themselves is very telling, whether it is a reflection of the mindset that seems to prevail in the region or of the true appeal — or lack of — of Souq to new entrants into this market,” he said.
MENA’s retail ecommerce market is broadly worth around $3 billion a year, according to Alabbar, which tallies with Payfort’s estimate of $2.84 billion in 2015.
What we do know is there’s a lot riding on the outcome of this deal.
As the feted tech star of the Middle East many are depending on a good outcome to spur other entrepreneurs in the region and to prove that yes, we’ve built a true unicorn in a world where unicorns are, if not mythical anymore, still rare outside the US and China.
