Amazon deal to buy Souq.com a ‘coming-of-age’ of Mideast ecommerce

The logos of Souq.com and Amazon are seen at Souq.com office in Dubai, United Arab Emirates on Tuesday. (Reuters)

DUBAI: Amazon’s acquisition of online retail site Souq.com marks a “coming-of-age” of the Middle East ecommerce sector, technology experts said.
Souq plans to expand its workforce and operations after the US market leader clinched a deal to buy 100 percent of the Middle East player, executives from both firms said.
Amazon had walked away from talks with Souq.com earlier this year, but it reportedly came back with an offer of $650 million.
Amazon and Souq.com said earlier on Tuesday they had agreed on the takeover, despite an eleventh-hour bid by Dubai billionaire Mohamed Alabbar’s Emaar Malls to cut in with an offer it said was worth $800 million.
Executives have not disclosed the value of the Amazon deal, which adviser Goldman Sachs called “the biggest-ever technology M&A transaction in the Arab world.”
Sources with knowledge of the takeover said Amazon was paying less than Emaar’s offer, making it lower than Souq.com’s $1 billion valuation when it sought funding last year.
One source said Souq.com would have broken an exclusivity agreement with Amazon if it accepted Emaar’s bid at this stage.
“Amazon is a great fit with us. We have a lot of common values and it is all about innovation, technology and the type of customer experience and thinking that Amazon has,” Souq.com Co-Founder and Chief Executive Ronaldo Mouchawar told Reuters.
Technology expert Matthew Reed, practice leader for the Middle East and Africa at Ovum in Dubai, said that the deal was significant.
“The Amazon deal to buy Souq.com marks a coming-of-age moment for e-commerce in the Middle East,” Reed told Arab News.
“Currently, e-commerce in the region is less advanced than might be expected the given the relative affluence and high levels of broadband connectivity in the GCC states. But the arrival in the region of a global leader such as Amazon should help to develop and grow the e-commerce sector here.”
The deal will help grow an already major player in the Middle East online retail sector. Alabbar himself has advanced plans for the launch of Noon, slated as a $1 billion portal that will have a big initial focus on fashion and luxury products.
“Assuming the deal goes ahead, Noon will face tougher competition than it might have been expecting, as in Amazon it will be up against what many see as the world’s leading e-tailer,” Reed said.
P.K. Gulati, a Dubai-based technology investor, said that the Amazon-Souq deal was “awesome”.
“I think it’s great for the ecosystem — it’s great as a role-model deal, in the sense of people thinking that they can do it,” Gulati – who has made about 15 investments worldwide, mainly in Silicon Valley and India – told Arab News.
It was also remarkable given Amazon’s track record in business, he added. “Amazon has a reputation of not buying companies — rather, of making them.”
Gulati said that Alabbar’s unsuccessful 11th-hour bid for Souq simply came too late.
“Putting a counter-bid on a Friday was in my opinion probably too late… I think the deal was already done already by then.”
Noon may become a future player in the space, but such sites typically take some time to take off, Gulati added. It typically “takes three to five years for a platform to stabilize and become something which people like,” he said.
Souq.com, founded in 2005, stocks 8.5 million items on its website and generates about 50 million monthly visits, the site’s CEO Mouchawar told Reuters. It delivers to the six Gulf Arab states and Egypt.
Mouchawar said there was scope to expand the business with Amazon and to increase the 3,000-strong workforce to boost Souq.com’s reach, without saying by how many it would rise.
“We will continue to invest in our segment and grow our markets,” he said at Souq.com’s Dubai headquarters.
Despite its young, tech-savvy population, shoppers in the Middle East still prefer to shop in stores. Online retail accounts for less than 1 percent of total sales in the Middle East, according to market researcher Euromonitor International.
“We want to figure out how to grow the team here. If we’re going to grow the business we have to grow logistics, we have to grow technical development,” Amazon Senior Vice President Russ Grandinetti said.
In a deal document seen by Reuters, Goldman said the acquisition would accelerate Amazon’s entry into “attractive Middle East countries with significant growth potential.”
After the Amazon takeover, Middle East consumers will be able to buy products available on Amazon.com through Souq.com, and Middle East merchants will have access to a wider market via Amazon’s network.
The acquisition is expected to close later this year.
Souq.com’s current shareholders include South Africa’s Naspers Ltd. and Tiger Global Management.
The Amazon deal was backed by the Dubai government, which wants to use technology to expand its regional retail footprint.
Dubai’s Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al-Maktoum said in a statement it showed the city state’s position “as a regional and global hub for the world’s biggest and leading organizations.”
Amazon’s acquisition of Souq.com is seen as significant for the Middle East’s nascent tech sector.
“This is effectively a vote of confidence in the region. You have a major American company going into a digital company in the region,” said Fadi Ghandour, founder Dubai-listed logistics firm Aramex and a prominent venture capitalist in the Middle East.
— With Reuters