Retailer looking to pick up entire shareholding in Souq.com for roughly $1.2 billion
Amazon.com Inc. (NASDAQ: AMZN) is weighing a bid for a stake in Dubai-based online retailer Souq.com FZ, as it seeks to expand its footprint in the Middle East, as reported by Bloomberg on November 24th, 2016. Seattle-based Amazon.com is considering bidding for the entire shareholding, while Souq.com had initially planned to sell only a 30% stake to fund its regional expansion plans. No final agreements have been reached and negotiations could still falter, Bloomberg added. There is still a strong possibility that Souq.com still sell only a 30% stake as initially planned.
The 30% stake in Souq.com, which values the company at roughly $1.2 billion, has also drawn interest from private equity firms and regional, family-owned companies seeking to expand into web sales. The potential deal would help Amazon.com establish a presence in key and emerging markets like Egypt, Saudi Arabia, and the United Arab Emirates (UAE), where economic growth and a growing population are drawing the interest of companies and private equity firms.
Souq.com attracts fresh funding ahead of proposed IPO
Established in 2005, Souq.com, the largest online retailer in the Middle East, sells more than 1.5 million products across 31 categories to customers in the UAE, Egypt, Saudi Arabia, Kuwait, Bahrain, Oman and Qatar. The website claims that it attracts 45 million unique visitors to its pages each month. In February 2016, Souq.com announced it had raised more than Dhs1bn ($275 million) in funding from existing investors Tiger Global Management and Naspers, new entrants Standard Chartered Private Equity, World Bank member IFC, Baillie Gifford, and several regional and tech-focused financial institutions.
Since 2005, Souq.com has received $425 million in overall funding as a private company, after having raised $150 in venture capital in June 2015. Following its recent round of funding, Souq.com was valued at over $1 billion. The website has grown at a scorching pace of 30% to 40% Y-o-Y across its footprint covering the Gulf countries and Egypt and 50% in Saudi Arabia.
In September 2016, Souq.com planned to sell a 30% stake in the company and had appointed Goldman Sachs Group Inc. (NYSE: GS) as advisers to scout for potential buyers. At that point, Souq.com’s CEO and Co-founder Ronaldo Mouchawar stated that the company might be looking into an initial public offering in the future, although those plans would have to be changed.
Amazon focuses on high-growth markets
To quell the slowdown in growth from the U.S. markets, Amazon has been targeting potential takeovers in growing international markets. Amazon receives 63.5% of its online traffic from the U.S. Given the market saturation in the U.S., it recently expanded its Prime subscription service to China and India. The potential deal to acquire Souq.com would certainly help Amazon.com establish a presence in key and emerging markets like Egypt, Saudi Arabia, and the UAE.
However, there are two key challenges to overcome in these countries: the lack of credit cards users, wherein customers have to make online purchases using prepaid cards sold at physical stores; and secondly, the lack of warehouse and shipping centers required to make quick deliveries. To overcome these challenges, analysts believe that Amazon.com could explore possibilities of encouraging payments via Bitcoin, a digital currency which has already been adopted by many major online retailers such as Tiger Direct, Microsoft Corp. (NASDAQ: MSFT), Namecheap and many more. If Amazon were to acquire Souq.com, Bitcoin adoption might be the key to expanding its presence worldwide.
The potential deal is seen to be a win-win situation to both parties since Amazon.com would gain foothold in the emerging markets in the Middle East where it currently does not have presence, while Souq.com would gain from Amazon.com wide-reaching distribution and logistics muscle power, technology support, and mobile shopping options. Either way, the deal could have huge ramifications for both companies given the intense competition in online retailing.
Amazon.com Inc.’s stock ended the day at $766.77, slipping 1.74%, at the close on Monday, November 28th, 2016, having vacillated between an intraday high of $777.00 and a low of $764.24 during the session. The stock’s trading volume was at 4,381,908 for the day. The Company’s market cap was at $364.35 billion as of Monday’s close.