Why Uber is Buying its Middle East Rival Careem for $3.1 BillionThe move has come after Uber recorded heavy losses last year ahead of its plans for an initial public offering

Uber is on its way to acquire Careem for $3.1 billion, consisting of $1.7 billion in convertible notes and $1.4 billion in cash. The transaction is expected to close by Q1 2020, says the company.

Aiming to expand its presence in Middle East, Uber will acquire all of Careem's mobility, delivery, and payments businesses across the greater Middle East region, which covers all major markets from Morocco to Pakistan, including Egypt, Jordan, Pakistan, Saudi Arabia, and the United Arab Emirates.

The Road Ahead

Careem will become a wholly-owned subsidiary of Uber, preserving its brand. In an email written by Dara Khosrowshahi to Uber employees, the chief executive revealed that Careem co-founder and CEO Mudassir Sheikha will lead the Careem business, which will report to its own board made up of three representatives from Uber and two representatives from Careem. Both companies will operate their respective regional services and independent brands.

The move has come after Uber recorded heavy losses last year ahead of its plans for an initial public offering (IPO).

Commenting on the development, Khosrowshahi says, "This is an important moment for Uber as we continue to expand the strength of our platform around the world. With a proven ability to develop innovative local solutions, Careem has played a key role in shaping the future of urban mobility across the Middle East, becoming one of the most successful startups in the region."

"Working closely with Careem's founders, I'm confident we will deliver exceptional outcomes for riders, drivers, and cities, in this fast-moving part of the world," he adds.

Careem was launched in 2012, three years before Uber entered the Middle East market. It has since been an arch-rival in the Dubai and UAE market. Founded by two former McKinsey executives, the company has a strong presence in Egypt and Pakistan. The company launched itself as a ride-hailing startup, and later went on to add more options in mobility sector like digital payments, food delivery etc.

Growth Strategies

Considering the rising potential in the Middle East along with rapid technology adoption and improved access to transportation, Uber is betting high to create a bigger ecosystem. The acquisition will speed up the delivery of digital services to people in the region through the development of a consumer-facing super-app that offers services such as Careem's digital payment platform (Careem Pay) and last-mile delivery (Careem NOW).

"The mobility and broader internet opportunity in the region is massive and untapped and has the potential to leapfrog our region into the digital future. We could not have found a better partner than Uber under Dara's leadership to realize this opportunity. This is a milestone moment for us and the region, and will serve as a catalyst for the region's technology ecosystem by increasing the availability of resources for budding entrepreneurs from local and global investors," says Sheikha.

This transaction brings together Uber's global leadership and technical expertise with Careem's regional technology infrastructure and proven ability to develop innovative local solutions.

Both companies believe it will provide an opportunity to expand the variety and reliability of services offered, at a broader range of price points to serve more consumers. Similarly, for drivers and captains, the companies believe an increase in trip growth and improved services could provide better work opportunities as well as higher and more predictable earnings through greater utilization of drivers' time on the road.