Ronaldo Mouchawar, Founder and CEO, Souq.com
Ronaldo Mouchawar, founder and chief executive of Souq.com

Amazon has agreed to buy Middle Eastern online retailer Souq.com in a deal worth more than $650m that will shake up the region’s small but fast-growing ecommerce sector.

Souq, which was co-founded in 2005 by Syrian entrepreneur Ronaldo Mouchawar, is one of the Middle East’s most recognised online brands as its largest digital sales portal.

The deal was agreed this week, according to two people familiar with the transaction, with the US giant paying between $650m-$750m for the Dubai-based company. Amazon and Souq declined to comment.

Amazon had been considering its entry into the Middle East under its own name. However, buying Souq provides it with an existing customer base and the infrastructure to store and deliver products.

Souq, which delivers to the six Gulf Arab states and Egypt, launched as an online auction site before shifting to a marketplace model similar to Amazon in 2011.

The transaction will conclude a nine-month sales process for Souq after private equity backers Tiger Global Management and South Africa’s Naspers sought an exit.

The deal was initially envisioned as a 30 per cent stake sale, which has been hoped to value the company at more than $1bn, making it the region’s first putative unicorn.

But the price has since slipped and the transaction moved to an outright sale, according to those familiar with the deal.

One of the rival bidders was tycoon Mohamed Alabbar, chairman of Dubai real estate company Emaar. Mr Alabbar’s bid was rejected as too low, say people aware of the matter.

In November, the prominent businessman revealed plans to launch Noon, an ecommerce start-up with financial backing from Saudi Arabia’s Public Investment Fund, controlled by the kingdom’s powerful deputy crown prince, Mohammad bin Salman.

Other retailers, worried about the growing threat of internet-based rivals, also looked at the transaction, which was handled by Goldman Sachs. Amazon first expressed interest in November, one of the people said.

Amazon’s acquisition of Souq sets the scene for a battle over the region’s fast-growing ecommerce market.

“This is the global might of Amazon against the regional expertise of Noon,” said one private equity investor. “Everyone is worried that the might of Amazon will blow everyone out of the water.”

Emirati women walk past a window display featuring valentines gifts at a mall in Dubai on 13 February, 2008. True to tradition, Saudi Arabia's religious police are zealously enforcing a ban on Valentine's Day symbols in the austere Muslim kingdom. But in other Gulf Arab countries, celebrations of the traditional lovers' day are now common and appear to be gaining acceptance. AFP PHOTO/KARIM SAHIB (Photo credit should read KARIM SAHIB/AFP/Getty Images)
Amazon’s entry into locally-fulfilled online sales in the region has worried traditional retailers © AFP

Amazon’s entry into locally-fulfilled online sales in the region has made traditional retailers worried that speedy ecommerce growth will hit their mall-based strategies.

Digital sales account for less than two per cent of all retailing activity in the Middle East, but the sector is growing at about 30 per cent a year, with young buyers particularly active in a region with widespread smartphone usage.

Mr Alabbar, most renowned for his central role in Dubai’s real estate market, including building the world’s tallest tower Burj Khalifa and the massive Dubai Mall, is now focusing on technology in his personal businesses.

Last year he formed a $138m joint venture with online retailer Yoox Net-a-Porter to target luxury spending in the Middle East. His Symphony Investments vehicle took a 40 per cent stake in the Milan-based company, which plans to start selling products into the region this year.

He also led the acquisition of Kuwaiti food group Americana, which operates hundreds of regional fast-food outlets including Pizza Hut and KFC, and he bought a stake in logistics company Aramex.

The Aramex deal was designed to give his ecommerce start-up Noon a logistics advantage for delivering sales placed online.

“The market is big enough to accommodate several players,” Mr Alabbar told the Financial Times in a statement. “This will lift the game and ultimately benefit the customer.”

Additional reporting by Madhumita Murgia

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