The Yahoo!-Maktoob acquisition, a Middle Eastern perspective

You may or may have not heard that Yahoo! recently acquired Maktoob for an announced sum of money believed to be somewhere north of USD 80 Million.

Now if, however, you live on planet Earth, then you’ve already heard the story, discussed it over sheshah, and may have even decided to set up your own internet business. But is it just a load of hype or is there genuine cause for joy over this acquisition?

Well I, for one, am excited. Not sure if I’m in the minority here, but I believe the acquisition of Maktoob by Yahoo! really does represent a significant milestone signifying the arrival of the dotcom craze to the Middle East. Fashionably late, but making a fabulous entrance that cannot be ignored. The deal, you see, does feature as one of the top 80 biggest website sales of all time, a list that includes the likes of YouTube, CNET and Skype. It also signifies the arrival of the Arab Online Market as a viable addressable market.

Not to be mistaken, there are some other homegrown success stories that cannot be ignored: I have always been a tremendous fan of Bayt.com, a well managed company whose owners have always understood the value of a solid business model which has served them well, allowing them to survive in the face of growing competition from the likes of Monster.

However, to appreciate the significance of this sale it’s worth taking a short trip through the company’s history. Maktoob was formed in 1998 and, at the time, was one of the leading companies in the region, joined by arabia.com, the once formidable player in this space that has gone the way of the dodo bird.

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Maktoob, somehow, survived that era through continuous innovation. In 2005 Abraaj Capital, the Dubai-based private equity fund, acquired a 40% stake in Maktoob for $5.2 million, valuing the company at a mere $13 Million. In 2007 Abraaj Capital sold its stake in Maktoob to an existing shareholder in the company, Tiger Global Management, for a rumored IRR of 75%. A handsome return on an investment that was only 2 years old, but a far cry from its current valuation.

Abraaj Capital’s investment was in the Maktoob empire, which includes maktoob.com, souq.com, CashU and a host of other companies. Since then, the valuation of the portal alone, Maktoob.com, has risen exponentially if the transaction price of $80 million is true. This may be attributed to a growing interest by established companies to expand globally, or it may signify the growing importance of the regional market, but to me it shows that proper valuation techniques have finally come to bear. Investors are finally beginning to understand the value of web-based companies in the region.

So, if this is our dotcom boom what can we expect? Who’s next? Is anyone else up for sale? I don’t know, but I can’t wait to see what the future will hold. I do hope, however, that the extent of regional innovation extends beyond marketing a shawermaless shawerma shop!