Amazon Establishes a Foothold in Middle East with Souq Acquisition

Amazon is adding to its online shopping presence with the acquisition of Dubai-based Souq.com. While terms were not yet disclosed, it is estimated the deal is valued between $650 million and $800 million.

Souq was founded in 2005 by Syrian entrepreneur Ronaldo Mouchawar. With 45 million monthly visitors, Souq sells more than 8 million products in the UAE, Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, and Egypt. The company has approximately 3,000 employees.

Amazon was able to cement the deal despite interest from eBay, an Emirati retail group and a Dubai commercial real estate developer. Prior to the acquisition, Amazon was interested in acquiring only a 30% stake in Souq.

During its most recent funding round, Souq raised $275 million from investors, which brought its valuation to approximately $1 billion. Major shareholders in Souq include South Africa's Naspers Ltd. and Tiger Global Management.

Goldman Sachs, who handled the deal, called this "the biggest-ever technology M&A transaction in the Arab world."

The Middle East represents a significant opportunity for Amazon. Currently, only about 2% of retail purchases there are made online. However, online sales growth is estimated at 30% annually and will eclipse $27 billion by 2020 thanks to an increasing population of younger, tech-oriented consumers.

An e-commerce competitor in the Middle East, Noon, hopes to enter the mix. Backed by Saudi Arabia's Public Investment Fund (PIF), Noon plans to launch this year with 20 million products.

The Middle East is a key region for Amazon. As Alibaba dominates the Chinese market, this purchase could set-up an online showdown between the 2 e-tail giants in the rapidly developing Indian market.

Amazon says the Souq acquisition is scheduled to close later this year.