By Nicole Encalada, International Business Writer
As of Tuesday, Amazon has confirmed its purchase of Arab e-commerce site Souq amongst its efforts to make its way into emerging markets.
Souq launched its platform in 2005. With operations in the KSA, UAE, and Egypt, the company draws in over 45 million visitors each month. Souq’s inventory includes more than 8.4 million products across a broad list of categories.
CEO Ronaldo Mouchawar commented on the recent acquisition saying, “We are guided by many of the same principles as Amazon, and this acquisition is a critical next step in growing our e-commerce presence on behalf of customers across the region”. The company also acknowledges that this acquisition will also be beneficial to further their delivery services as well as to its customer selection.
After months of speculation, the deal was said to be in the range of approximately $650 to $700 million. It was also rumored that both Amazon and Souq were discussing an acquisition of 30 percent stake for $300,000 on Amazon’s part.
According to Bloomberg, Mohamed Alabbar’s Emaar Malls bid $800,000 so Souq, rivaling Amazon.
While Amazon has been expanding into India, China, and Mexico, this acquisition is one of the largest deals Amazon has had in years. The deal is expected to close this year.
Goldman Sachs, the advisors of the acquisition commented on the news calling the purchase “the biggest-ever technology M&A transaction in the Arab world..” The purchase comes as a great benefit to Amazon as it is their first time getting their foot in the door of the Middle Eastern market. It is expected to be just as successful in this region as it has been in every other market they have ventured in.
The entire Middle East has about 50 million consumers, however, only 2 percent of purchases are made online in the region. While wealth is common in the area, e-commerce remains greatly untapped. Shopping at malls and retail centers is more popular in the area as it is seen as a leisure activity. This could be the beginning of Amazon dominating in the Middle East or even expanding online retail expenditure amongst those countries. Certainly, Amazon will make a strong presence in emerging markets such as Egypt, Saudi Arabia, and the UAE.
While other buyers have tried to make it in the Middle East, they have not had as much luck as Amazon is expected to have. Yahoo bought Maktoob for $160 million, an online services company, back in 2009 but eventually shut down those Middle Eastern operations. Jeff Bezos, founder of Amazon, is focused on the long-term potential of Souq, bolstering its probability of success.
Considering Souq’s track record, it seems like a promising investment for Amazon. The company completed the largest e-commerce financing in the Middle East’s history, having raised $275 million from investors Tiger Global Management and Naspers. Souq even added several investors including Standard Chartered Private Equity, IFC, and Baillie Gifford. The company used these investments for new technology and new product categories.
The company even launched a fulfillment operation for sellers last year called “Fulfilled by Souq.” It also invested in a local grocery app called InstaShop. The app, based in Dubai, offers a 30-minute delivery to local resident. Another success for Souq is their recent same-day delivery available in Dubai.
Luckily, for both companies, e-commerce within the region is expected to grow 30 percent a year, according to Star Chartered analysts. Amazon’s aquision of Souq promises real potential.
A version of this article appeared in the Tuesday, April 4th print edition.
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