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April 2, 2019updated 12 Apr 2019 4:12pm

Middle East tech sector stands to gain from Uber and Careem merger

By Jennifer Aguinaldo

The $3.1bn acquisition of Dubai-based ride-hailing firm Careem by its US rival Uber Technologies is viewed as a major victory not only for the six-year-old startup but also for the Middle East’s entire nascent technology industry.

Uber Careem acquisition

The value of the deal for the homegrown technology firm exceeds the $650m price tag that online retail giant Amazon paid for Souq.com two years earlier.

The merger is seen as a major payday for Careem’s investors. Saudi Arabia-based Al-Tayyar Group, one of the firm’s early investors, announced an exit value of Saudi Riyal 1.78bn ($75m) the day the sale was confirmed.

Other Careem investors include Japan’s Rakuten Incorporated; Saudi Arabia’s Kingdom Holding and Saudi Telecom Company (STC); the US’ SQM Frontier; Egypt’s El-Sewedy Investments; and venture capitalists Beco, Endure, Lumia and Wamda.

It is clear that the cash and notes swap from this deal will involve the region’s key sovereign wealth and investment houses. Saudi Arabia’s Public Investment Fund (PIF) invested $3.5bn in Uber in 2016, and its managing director, Yasir Othman al-Rumayyan, sits on Uber’s board of directors.

Careem investors include Prince Alwaleed bin Talal-controlled Kingdom Holding, which acquired Dubai-based Abraaj’s shares in the company in 2017, and Saudi Telecom Company, which PIF controls.

As it stands, the sale will help secure Dubai’s place as a destination for venture capital, as it strives to build innovation centres for financial technologies (fintech), 3D printing, blockchain and autonomous vehicles, among others.

Uber Careem acquisition: contagion

It will also encourage other cities and countries in the region, if they have not done so already, to develop a cohesive plan to incentivise technology startups as part of their overall economic diversification plans.

Careem’s success stemmed from its ability to combine a better quality of service (especially compared with existing taxi services and even those offered by its new owner), home advantage and a determined strategy to offer new services such as deliveries to keep Uber at bay.

Following the merger, the next and most important step for both Uber and Careem is to ensure that one company is better than two in terms of services and fees, a task that similar deals have struggled to attain.

This article is sourced from Verdict sister publication MEED.com