By Nicolas Parasie
DUBAI -- Amazon.com Inc. said Tuesday it is acquiring
Dubai-based Souq.com, placing one of its biggest global bets in
recent years on the small but rapidly expanding Middle Eastern
online shopping market.
Amazon didn't give a value but a banker familiar with the deal
said it was worth around $700 million. The acquisition is unusual
for the global giant, which has spent heavily on expanding its
footprint around the world but doesn't often splash out taking over
whole companies as large as Souq.com.
"We're looking forward to both learning from and supporting them
with Amazon technology and global resources," said Russ
Grandinetti, Amazon's senior vice president for international
consumer.
Souq.com, founded in 2005 by Syrian-born entrepreneur Ronaldo
Mouchawar, has grown into one of the region's biggest e-commerce
businesses -- offering over 8.4 million products across categories
such as consumer electronics, fashion and household goods -- with
around 6,000 employees and local operations in Saudi Arabia, the
United Arab Emirates and Egypt.
Amazon beat Dubai's shopping-center heavyweight, Emaar Malls,
which made a last-ditch $800 million offer to acquire Souq.com.
Amazon's acquisition of video technology company Twitch Interactive
Inc. for about $842 million, after adjustments, in 2014 was its
last publicly announced deal of a larger size.
"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," Mr. Mouchawar
said. "We'll be able to vastly expand our delivery capabilities and
customer selection much faster."
The acquisition is expected to close this year.
Amazon has been looking abroad for growth as it increasingly
dominates the U.S. market. It has launched Prime offerings -- a
service giving members access to perks like free, fast shipping and
video content or other features for a flat annual fee -- in 13
countries including China and Mexico most recently.
Analysts estimate the total number of Prime members world-wide
north of 60 million, a figure Amazon doesn't release. Those members
can be valuable: In the U.S., Prime members spend double the amount
of their non-Prime counterparts on the website, according to
estimates.
But analysts have recently become more concerned about the
online retail giant's heavy investments, including building more
warehouses, and spending on video content and its international
presence. They caution that while the Souq acquisition and other
investments could jump-start growth, it could mean depressed
margins for the near term.
Still, its strategy of investing in emerging markets like India
and Mexico could pay off, write Robert W. Baird & Co.
analysts.
"With a purchase of Souq, we believe that Amazon would obtain a
strong local brand, an early leadership position in the Middle East
e-commerce market, and a large team with plenty of local expertise,
for example in managing payments," they add.
Amazon already has a small presence in the Middle East. Its
subsidiary Amazon Web Services, the company's cloud computing
platform, opened offices in Dubai and Bahrain earlier this
year.
The acquisition of Souq will give Amazon strength in the region
thanks to Souq's existing customer base and infrastructure.
Souq.com attracts more than 45 million visits a month, according to
the company.
The takeover of Souq sets up the U.S. retail giant for a fierce
battle with regional real-estate billionaire Mohamed Alabbar. His
$1 billion e-commerce platform is expected to start within weeks,
according to a person familiar with the company's plans. The new
venture called Noon will offer 20 million products and is backed by
Saudi Arabia's sovereign-wealth fund, the Public Investment
Fund.
Emaar Malls, which made the rival bid for Souq.com, is the
retail unit of real-estate giant Emaar Properties, whose chairman
is Mr. Alabbar.
Both Souq, which means market in Arabic, and Noon are eager to
profit from population growth in the Middle East, high levels of
disposable income and smartphone penetration.
While still small compared with more mature markets, the Gulf
region has the potential to become one of the world's
fastest-growing e-commerce markets. Consultancy A.T. Kearney
estimates that the Gulf's online shopping market could swell to $20
billion by 2020 from $5.3 billion in 2015.
The acquisition of Souq will give Amazon strength in the region
thanks to Souq's existing customer base and infrastructure.
Souq.com attracts over 45 million visits a month, according to the
company.
Amazon already has a small presence in the Middle East. Its
subsidiary Amazon Web Services, the company's cloud computing
platform, opened offices in Dubai and Bahrain earlier this
year.
Souq.com has often attracted interest from international
investors. Last year, it raised $275 million from investors
including New York-based Tiger Global Management, South Africa's
Naspers and Standard Chartered's private equity arm.
Amazon's takeover of Souq was welcomed by the leadership of
Dubai, the region's business and tourism hub which has been seeking
to attract international companies.
Mr. Mouchawar's "story is a beautiful one," said Mohammed Al
Gergawi, the U.A.E. minister of cabinet affairs. "You want a story
like his, a Syrian who is doing a company worth hundreds of
millions of dollars."
Souq originally planned a public listing or a partial stake sale
in the company but the transaction evolved into a full sale, said
bankers familiar with the deal. The sale process was delayed due to
strong disagreements on price and amid interest from other regional
companies keen on expanding in e-commerce.
The sale to Amazon represents a rare successful exit for a
Middle Eastern startup. Yahoo in 2009 acquired internet portal
Maktoob. In 2015, German e-commerce group Rocket Internet acquired
Kuwaiti food-delivery business Talabat for about $170 million.
--Laura Stevens and Sam Schechner contributed to this
article
Write to Nicolas Parasie at nicolas.parasie@wsj.com
(END) Dow Jones Newswires
March 28, 2017 12:27 ET (16:27 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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