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Uber Makes $3 Billion Middle East Acquisition Ahead Of IPO

Uber Makes $3 Billion Middle East Acquisition Ahead Of IPO

Uber the ride hailing app provider and driverless car technology company is to buy Dubai-based rival Careem for a total of $3.1 billion in cash and equity. Uber is expected to list on the Nasdaq exchange next month in a giant $100 billion to $120 billion IPO. Despite still being loss-making, the IPO would be the biggest tech float since Alibaba in 2014 and one of the biggest of all time.

The move is something of a surprise against a backdrop of Uber’s recent strategy being one of pulling back from several geographies. The company recently sold its business in China, south-east Asia and Russia, agreeing to withdraw from those markets in exchange for minority stakes in local competitors. Uber and Careem have, until now, also been direct competitors across the Middle East, north Africa and south Asia in both ride hailing and food deliveries.

Another aspect to the acquisition that may come as unexpected is that Uber will continue to operate the Careem brand alongside Uber in markets where they currently compete. Maintaining the company as a standalone brand with independent operations was conditional to the deal being agreed.

Uber chief executive Dara Khosrowshahi arrived at the conclusion that the strength of the Careem brand meant that made sense to the company, though some integration between systems will take place. Exactly what and how is yet to be clarified. In a note to Uber employees, Khosrowshahi explained:

“After careful consideration, we decided that this framework has the advantage of letting us build new products and try new ideas across not one, but two, strong brands, with strong operators within each.”

The structure of the deal is $1.4 billion in cash and a further $1.7 billion in convertible notes that value Uber’s equity at $55 a share ahead of its impending IPO. The company’s sale represents a significant success for its co-founders, chief executive Mudassir Sheika and Magnus Olsson, who founded the company together in 2012 having previously both worked at consultants McKinsey.

Investors in Careem including German auto manufacturer Daimler, Rakuten and Didi as well as Middle East investors that include the Kingdom Holding Company, the fund of Saudi Arabia’s Prince Alwaleed bin Talal’s, STC Ventures and Al Tayyar Group, will also be content with their return. Careem was last valued at $2 billion during its most recent funding round last year.

Wamda Capital, a Dubai-based VC fund which was also an investor in Careem believes the acquisition marks a milestone in the development of the Middle East’s technology sector and VC industry. Chief executive Fadi Ghandour called it a statement that launched “a new era” and that “the size of this deal makes the biggest and most impactful statement yet.”

It’s the second major acquisition of a home-grown Middle East tech company after Amazon last year acquired local ecommerce platform Souq.com for $650. While that acquisition also came as a surprise and raised awareness of the potential in the Middle East market, it wasn’t particularly good for the company’s earlier investors. It had been valued at $1.2 billion the previous time it raised capital.

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