Amazon Acquires Souq Entering into Middle Eastern Markets

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Cincinnati - Circa June 2016: Amazon Store in the U Square. Amazon@Cincinnati is Amazon's first Cincinnati brick-and-mortar store II

Amazon (AMZN) confirms that the company has acquired Souq.com, a Middle Eastern e-commerce marketplace with headquarters in Dubai. The acquisition is expected to close in 2017 barring any unforeseen closing conditions.

The move allows Amazon to transition into the Middle Eastern market with a strong foothold  thanks to Souq. The online marketplace provides Amazon with infrastructure needed to ship products to the Middle East and has millions of customers.

Souq, a quick growing company, will remain operational and will run as a separate entity. Amazon will support the Middle Eastern pioneer with the company’s global resources and technology. Amazon’s current seller technology will be a part of the deal allowing small sellers to sell their goods on Souq.

Customer selection and delivery range will be a focal point of the acquisition. Amazon’s empowerment of sellers will be part of Souq’s culture,  too.

Bloomberg reports that Amazon and Souq.com were in talks for Amazon to buy a 30% share in the company. The November talks ended with no final agreement and investors unsure if a deal would be finalized in the future.

Goldman Sachs Group (GS) was part of the equation helping Souq find a buyer for the share in the company.

Souq, as reported in November, maintained a 1.5 million product catalog that stretched from the United Arab Emirates to Saudi Arabia and Egypt. November talks discussed Amazon acquiring a 30% stake in the company, which at the time, was valued at around $1 billion.

Souq secured $275 million in funding from outside investors.

Amazon’s due diligence in November must have led the retail giant to determine a complete acquisition was in the best interest of the company. Several other rumored names were said to be interested in the e-commerce marketplace, including eBay, Mohamed Alabbar and Majid Al Futtaim.

The Middle East encompassses 50 million consumers and is an untapped market. Reports suggest that just 2% of consumer spending is online in the Middle East. Souq is said to have expanded their marketplace catalog to 4 million products in recent months.

Amazon plans to bring on additional teams and seasoned management to help Souq prosper.

Amazon is said to have acquired the company for $650 million. The sale price is far lower than Souq’s recent valuation of $1 billion. Investors have funneled $425 million in Souq to help the marketplace grow.

The purchase marks a low cost path for Amazon to enter new markets after the company invested billions of dollars to move into Indian markets. Amazon’s foray into India’s untapped market has led to talks of competitors in the country merging to better compete against the retail giant.

Souq provides the infrastructure and technology Amazon needs to rollout their offerings in the Middle East.

Investors expect the Souq catalog to expand greatly following the acquistion’s close. Amazon’s stock has benefitted from the announcement rising over 4% this week. The company’s stock is up 2.19% on Wednesday.

Barclays’ further helped support Amazon stock after the company states “buy Amazon.”

Amazon also announced that the company will close Quidsi after the company failed to make money. Soap.com and Diapers.com are part of the Quidsi brand and will be shuttered as a result.

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