Amazon to acquire Souq, a Middle East clone once valued at $1B, for $650M

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Amazon continues its march across the globe, and one of its newest targets is the Middle East. According to multiple reports that we have confirmed with our own sources, the e-commerce giant has acquired Souq, often described as the Amazon of the Arab world and the region’s biggest e-commerce player, for a price of $650 million, to spearhead its Middle East business. “The ink is dry” on the deal already, one source close to the company tells us.

Souq itself declined to comment for this story. Its CEO Ronaldo Mouchawar did not answer our emails and phone calls. Amazon declined to respond to our request for comment.

“We’ll decline to comment on rumors and speculation, but thanks for reaching out,” said Ty Rogers, a spokesperson from Amazon.

While it could be transformative for the region, the acquisition is not the huge exit that investors had hoped for Souq. The company had been valued at $1 billion in its last round of funding a year ago, when it raised $275 million. And at the end of last year, Souq was actually in talks to sell a 30 percent stake to Amazon in a deal that also would have valued it at $1 billion.

After that initial sale fell apart, Souq — which also held acquisition talks with eBay and Emirati retail group Majid Al Futtaim last year — had spent 2017 to date thrashing out a deal that jumped between $500 million and $700 million. Eventually, the two parties settled on $650 million, a number “that both can swallow,” a source revealed.

Regardless of the lower price, it does look like investors will get their money back, and then some: in all Souq.com had raised $425 million, according to Crunchbase, with investors including Ballie Gifford, IFC Venture Capital Group, Jabbar Internet Group, MENA Venture Investments, Naspers, Standard Chartered Bank and Tiger Global Management.

The deal lets Amazon — which has never had business operations in the Middle East — hit the ground running with an already-large, established operation.

Souq has been around since 2005, founded by Mouchawar after Yahoo acquired his Arab-language internet portal Maktoob, leaving the e-commerce business behind (that portal was shut down by Yahoo in 2014 as part of its huge international retreat).

Today, it is the region’s largest e-commerce player in terms of active business: The company’s marketplace connects some 75,000 businesses with consumers to buy their goods, with the total number of products on offer currently at around two million across more than 30 categories, such as electronics, fashion, household goods and (most recently) car accessories.

But the marketplace is not all that Amazon is getting. Souq’s business also includes an existing fulfillment operation (logistics and fulfillment being a key part of how Amazon has expanded elsewhere). And it looks like the deal also will include Souq’s online payments gateway Payfort, which means that Amazon will be getting payments expertise and technology localized to the region.

Owning Souq sets Amazon up to play a significant role in the region’s growing e-commerce market, which today accounts for around only two percent of all retail spend, according to a report from McKinsey.

High noon in the Middle East

It’s an opportunity that others also are targeting. An ambitious new e-commerce venture called Noon.com is backed by $1 billion in capital from Saudi Arabia’s Public Investment Fund and Dubai real estate tycoon Mohamed Alabbar, whose firm owns The Dubai Mall and the Burj Khalifa, among other projects. While Noon.com is yet to launch — local media speculate it is opening “within weeks” — it played a part in Souq and Amazon’s coming together, a source tells us.

In a key event last summer, a consortium led by Alabbar snapped up a 16 percent stake in logistics player Aramex. That gave it the infrastructure match needed to fulfill their lofty plans for Noon.com, which is designed to be a digital complement to the vast offline retail footprint of Alabbar’s Emaar Retail Group.

Amazon had in the past expressed an interest in Aramex as a vehicle to enable it to launch a business of its own in the Middle East, one source told TechCrunch, so the Alabbar-led deal placed pressure on the U.S. firm.

Likewise, it also turned Noon.com into a very genuine threat to Souq’s business. That caused both parties to return to the negotiation table and hammer out an agreement after their initial deal fell apart, one source with knowledge of deal told TechCrunch.

Ultimately, a deal with Amazon — even at a lower price — was deemed the optimal way for Souq to move forward, and a better bet for investors than collaborating with other would-be suitors eBay, which isn’t as operationally focused as Amazon, or Majid Al Futtaim, which is strong offline, not online.

Noon.com aside, there is also competition from other players in the e-commerce space. They include Wadi, which last year raised $67 million, and Rocket Internet-backed Namshi.

The Souq deal expands on the foothold that Amazon has established in neighboring regions like India, where it has doubled down to compete against the likes of Flipkart and Snapdeal — which are reportedly now talking about a merger, partly it seems in response to the billions that Amazon is investing in its business there, and the ground that it is gaining as a result. Flipkart is also being linked with the acquisition of eBay India, which, while a lesser player in the country, would represent a significant consolidation move to attack the market. (Contacted for a response, an eBay spokesperson declined to comment on rumor and speculation.)

Considering Amazon’s patient approach to India, where it has opted to invest over time rather than acquire, it’s a significant move for the U.S. firm to expand in this inorganic manner in order to move in quickly in the Middle East.

To date, Amazon has taken a relatively slow approach to adding new markets, partly because it has been focused on building these services from the ground up. (The slow expansion has applied both to Amazon’s main e-commerce business and for other products like the Echo home hub and the Alexa AI-based voice interface. While these have been huge hits in the U.S., they have only expanded to the U.K. and Germany to date.)

A planned launch for Singapore to move into Southeast Asia had originally been scheduled for the first quarter of this year, but sources now tell us that this has been pushed back to later this year. The company is also reportedly gearing up for a local launch in Australia.

Featured Image: Souq (Facebook)