What’s going on here?
Uber will acquire its Middle Eastern rival ‘Careem’ for £2.4bn. This is the largest technology transaction ever in the region, eclipsing Amazon’s acquisition of Souq (a Middle Eastern e-commerce company) in 2017 for £440m.
What does this mean?
Careem operates in 120 cities across 15 countries. Uber plans to buy Careem’s entire business (including in Egypt, Jordan, Pakistan, Saudi Arabia and the United Arab Emirates). The acquisition is important because Uber recently retreated from overseas markets in China, Russia and Southeast Asia. Therefore, acquiring Careem will allow Uber to gain a foothold in countries where it doesn’t have a significant presence and it can enter new markets in countries like Iraq and Morocco.
The deal comes ahead of Uber’s initial public offering (IPO) this month, which is expected to value the company at a staggering £92bn. Buying Careem could help Uber look more attractive to potential investors and boost profits. Once acquired, Careem will operate as a wholly owned subsidiary of Uber.
What’s the big picture effect?
Careem has been hugely successful in the Middle East because it operates in a developing mobile technology market. Its ride-hailing app improved access to public transportation, while its food delivery service provided increased social benefits to a region which was quite unaccustomed to online services. Partnering with Uber will allow Careem to expand to a greater scale. The companies could develop a ‘super app’ which combines Uber and Careem’s delivery services, provides greater payment options and expands transportation access to consumers on an increasingly global scale.
Allowing Careem to operate independently is an intelligent decision by Uber. The technology company knows Careem’s competitive advantage lies in its understanding of the Middle Eastern region and culture. For example, Careem’s brand name is derived from the Arabic word ‘generous’, its app accommodates several Middle Eastern languages and its marketing is conducted in a regionally-conscious manner. Also, the loyalty that Careem’s customers hold for its services provides stiff competition for Uber in the region. These represent some of the business issues that Uber would have considered before deciding to make the deal.
However, the acquisition may face regulatory scrutiny. The deal combines two of the largest ride-hailing companies in the world. This regional market dominance would allow Uber and Careem to raise prices and have the power to pay low wages to drivers. If it passes the scrutiny of the regulators, the deal is anticipated to close in the first quarter of 2020.
Report written by Evania D.
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