Are Global Giants Threatened by the Success of MENA Start-Ups?

Published July 14th, 2020 - 02:00 GMT
Are Global Giants Threatened by the Success of MENA Start-Ups?
In 2009, Yahoo took full control over the first Arabic email service Maktoob and rebranded it under its name/ (File/Photo by Rami Khoury)

Today, global unicorns are showing more and more interest in successful Middle Eastern and North African start-ups, ones that have achieved great success in their own countries and the region. This interest in now showing in millions of dollars worth acquisition deals, but why are they interested in MENA start-ups so much? Could it be that they fear growing competition if they make it to their main markets?

In 2009, Yahoo took full control over the first Arabic email service Maktoob and re-branded it under its name in 2011. The deal that costed Yahoo somewhere between $85-$100 million was widely celebrated as a huge success for the Jordanian start-up which was founded back in 1999 after they were able to build the largest Arab online community in the span of a few years. 

Through Maktoob, Yahoo was able to add 16 million MENA-based new users, making it one of the biggest and most used email services in the world at that time. 

Unfortunately, Yahoo's financial troubles forced it to close its MENA offices in 2015, laying off tens of employees. Yet, their deal to buy Maktoob continued to be proof of promising opportunities in the MENA start-up scene.

According to a study published by MAGNiTT, more than 60 MENA start-ups were acquired by international companies between the years 2012-2017.

Following the 2008 global recession and the 2014 oil prices drop, the GCC government's efforts to diversify economic resources inspired new policies that focused not only on welcoming foreign investments but also encouraging them, which in turn facilitated several huge deals of global giants acquiring Middle Eastern start-ups.

Being one of the most successful food delivery services in the region since its foundation in 2004, Talabat was acquired in 2015 by the German-based European e-commerce group Rocket Internet. The Kuwaiti food delivery service Carriage was also bought by the German-based European delivery service Delivery Hero in less than a year of its foundation in 2016.

In 2017, Amazon's deal to take over the Emirati e-commerce pioneer Souq.com was closed with $580 million. Souq.com which was launched in 2005 and operated mainly in the UAE, Saudi Arabia, and Egypt has so far been the biggest Middle Eastern e-commerce platform.

In 2018, the UAE based classifieds app Dubizzle which was established in 2005 was acquired by the multi-national giant Naspers for $190 million. In 2020, Naspers's parent company, the Dutch OLX group merged with UAE-based real estate portal Bayut's parent company EMPG to form an US$1 billion Dubai-based unicorn company. 

A year later, MENA start-ups celebrated two major deals as the Emirati-based car-hailing app Careem was purchased by the global unicorn Uber for $3.1 billion and as the Egyptian dating app Harmonica (renamed to Hawaya later) was taken over by US-based Match.com.

Such deals are usually celebrated as they are perceived as signs of international recognition of hard-work and smart strategies, in addition to boosting markets' confidence in their businesses further growth, but this is not what it means to international buyers.

While international companies operating in the MENA region would feel more pressured to accept competition from local rivals, as in the case of Careem and Uber, sometimes their interest in acquiring successful start-ups stems from their aspirations to gain access to new markets, especially ones with high populations and strong purchasing power as in the GCC that can help them with their international growth.

Additionally, more and more companies are now inclined to work with less-risky investments, as a safer option for expanding business activity, which makes already successful and highly reputed companies a great opportunity for them.

Finally, by acquiring some of the most successful local businesses in a dynamic market similar to that of the MENA region, international businesses benefit from having some of the smartest and most successful brains in the industry, but also one of the most knowledgeable ones when it comes to the local market's needs and challenges.

With the COVID-19 crisis remaining under control in the Middle East at large and in the GCC region in particular, especially in comparison with developed industrial countries, it is possible that more international companies will express interest in obtaining well-managed MENA start-ups, particularly ones that were able to make the best out of the unprecedented crisis. Got any names in mind? 


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