Uber’s $3.1 billion acquisition of its Dubai-based rival Careem highlights the Gulf region’s reputation as an emerging commercial technology hub rather than simply a source of capital investment. The deal – expected to conclude in the first quarter of 2020 – will be one of the largest acquisitions of a tech firm in the Middle East. The Careem acquisition illustrates that global technology firms remain interested in Gulf markets and also that local Gulf firms operating in technology spheres provide attractive offerings for international investors.
The scale and form of this ride-hailing tech deal far exceeds other high-profile transactions in the Gulf region. Amazon’s acquisition of the Dubai-based e-commerce firm Souq in 2017 involved a paltry $580 million. Moreover, the nature of this commercial transaction contrasts substantially with Saudi Aramco’s $69.1 billion acquisition of a majority stake in Saudi Basic Industries Corporation. The SABIC deal is a reconfiguration of capital held by state-owned enterprises, whereas the Careem deal involves global investment in a Gulf-based private sector firm. The latter is precisely the type of private sector growth and foreign investment that Gulf Arab states want as part of their economic diversification narratives.
Under the agreement, Uber will pay Careem $1.4 billion in cash and $1.7 billion in notes convertible to Uber stock. In return, Careem will become a wholly owned subsidiary of Uber, which will acquire Careem’s mobility, delivery, and payment businesses across the Middle East. The announcement marks a shift in Uber’s global investment strategy, which has seen the company make strategic retreats in competitive markets such as China, Russia, and Southeast Asian countries. Yet this investment comes at a critical moment – Uber is trying to present a new growth narrative as it seeks a valuation of $120 billion during an initial public offering planned for April.
The diversity of investors in Careem indicates the tech firm’s regional and global appeal. The United Arab Emirates-based Abraaj Group as well as STC Ventures, an independently managed venture capital fund whose anchor investor is the Saudi Telecom Company, served as the early lead investors for Careem. Abraaj Group divested its shares to the Saudi-based Kingdom Holding Company prior to Abraaj’s collapse in 2018. Kingdom Holding, a Saudi conglomerate founded by Prince Alwaleed bin Talal, invested approximately $350 million in Careem over multiple funding rounds. In Careem’s latest investment series, Kingdom Holding was joined by STV, a Riyadh-based venture capital fund, and Al Tayyar Travel Group, one of the largest travel and tourism companies in Saudi Arabia.
Careem’s appeal extends well beyond the Middle East – Asian and U.S. firms are also prominent investors in Careem. The Japanese tech company Rakuten and the Chinese mobile transportation platform Didi Chuxing are both key role investors. Careem’s U.S.-based investors include Lumia Capital, Coatue Management, Endure Capital, and DCM Ventures. The geographically diversified portfolio of investors in Careem signals a wide range of potential funding sources for future tech startups in the Gulf.
Uber’s acquisition of Careem also has ramifications for Saudi Arabia, one of Uber’s largest investors. The Saudi government directly invested $3.5 billion from its Public Investment Fund in June 2016, granting the government a 14 percent ownership stake in Uber. The Saudi government also controls an indirect stake in Uber through SoftBank’s Vision Fund, which is Uber’s largest shareholder and the recipient of approximately $45 billion from the Public Investment Fund. Thus, Uber’s acquisition of Careem helps to channel returns on Saudi government capital back to Saudi firms. The Saudi Telecom Company, of which the PIF owns 70 percent, Kingdom Holding Company, and Al Tayyar all stand to receive substantial returns on their investments. Following the news of the acquisition, Al Tayyar announced plans to divest its shares for an exit package of $474.4 million, while Kingdom Holding sold its shares in Careem for around $333 million.
Both Uber and Careem will operate their regional services and brands independently as part of the commercial agreement. Careem has found an innovative solution for tapping Middle Eastern markets – it boasts 30 million users across 90 cities in the Middle East. For the time being, Uber hopes to foster the development of this approach rather than stifle it with brand homogeneity.
Careem’s commercial success in the Middle East serves, in part, as a reflection of the UAE’s broad strategy to become a hub for innovation and smart technology. For example, the UAE appointed the world’s first minister of state for artificial intelligence in October 2017. The country also boasts a minister of cabinet affairs and the future, who leads technology-related research projects and manages various technology-focused programs like the Global Blockchain Council.
Individual emirates in the UAE have adopted this broad strategy focusing on technology and innovation. In fact, Careem’s headquarters is located in Dubai Media City, a media- and tech-focused free zone managed by the TECOM Group. The group operates as a subsidiary of Dubai Holding, which is owned by Dubai’s ruler. Dubai also launched a Smart Dubai initiative to make the emirate “the happiest city on earth through technology innovation.” Ahead of this year’s Annual Investment Meeting in Dubai, government officials released figures citing $21 billion of foreign investments in projects related to artificial intelligence and robotics between 2015 and 2018. This may include expected or pledged investments.* The ruler of Abu Dhabi also approved $272 million in incentives for international agricultural tech firms and created Hub71, a fund for tech-based startups and venture capitalists.
Uber’s tie up with Careem further embeds Gulf tech firms within the global technology ecosystem. State-owned investment vehicles in the Gulf countries are increasingly eyeing European and U.S. markets. Since 2017, the UAE’s Mubadala, the Qatar Investment Authority, and Saudi Arabia’s Public Investment Fund opened tech-focused offices in San Francisco. Mubadala also launched a $400 million fund focused on European tech startups and received $200 million from SoftBank.
Careem’s growth trajectory signals a promising new phase for the Gulf’s technology sector. Rather than serving simply as a source of investment capital, the region is fast proving a lucrative base for promising entrepreneurs and a favorable ecosystem for tech firms. Policymakers in Gulf Arab states outside of the UAE will be racing to direct some of the excitement toward their economies, lest they fall behind in the fast-moving world of technology.
*Correction: The article did not originally note the figures came from government officials and may include expected or pledged investments.
