|09 January, 2020

More start-up deals like Uber-Careem, Amazon-Souq.com in UAE this year?

Corporates keen to acquire homegrown firms to scale up business

Investments in Middle East and North Africa (MENA) start-ups are proving increasingly popular. Image used for illustrative purpose.

Investments in Middle East and North Africa (MENA) start-ups are proving increasingly popular. Image used for illustrative purpose.

Getty Images/ imran kadir photography

After the blockbuster deals scored by UAE’s ride-hailing app Careem and e-commerce site Souq.com, the start-up community in the region will continue to see more major investments in 2020, as corporates are increasingly becoming interested in acquiring homegrown firms to scale up business.

According to an analysis by MAGNiTT, there will be more than 28 start-up exits across the Middle East and North Africa (MENA) region this year and a large share of those will be in the UAE. That’s higher than last year and nearly half of the total number of deals scored by start-ups over a five-year period.

“We expect that the majority of [these] exits will remain to be acquisitions for the foreseeable future,” Philip Bahoshy, CEO and founder of MAGNiTT.

“We will also see international interest in more established start-ups, as we have seen with the likes of Careem, Souq, Harmonica and others, which will make MENA-based start-ups acquisition targets to expand their regional footprint,” he added.

Between 2012 and 2017, there were 60 start-up exits across the region. At least 15 more exits occurred during the first half of 2019, according to MAGNiTT.

Start-up exits take place when a company is acquired, merges with another organisation or lists on a stock exchange through the so-called initial public offering (IPO). Investors then get a return on the money they had invested and exit the company.

In one of the landmark events that put the UAE in the spotlight last year, American company Uber coughed up more than $3 billion to take ownership of Careem. In 2017, e-commerce giant Amazon paid $580 million in cash to acquire the Dubai-based online retailer Souq.com.

According to Bahoshy, the upward trend of exits in the region is a sign that the start-up landscape is booming. Besides, he noted, there are several industries, including e-commerce and transport, that are heavily fragmented and investors as well as start-ups tend to seek consolidation in order to gain a competitive edge.

Last year was another exciting period for start-ups in the region, with the total number of funding secured in 564 deals hitting $704 million. More than half (60 percent) of the amount, $425.9 million,  went to start-ups based in the UAE.

“We do expect 2020 to surpass 2019 in terms of number of deals and total funding, as more start-ups look to raise growth capital and government initiatives such as Funds of Funds and matching programs come into effect,” said Bahoshy.

He said government initiatives supporting start-ups are crucial, as they provide “capital availability for start-ups,” which in turn allows them to raise cash and grow faster.

(Writing by Cleofe Maceda; editing by Mily Chakrabarty)

Cleofe.Maceda@refinitiv.com

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© ZAWYA 2020

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