LivingSocial acquires Middle Eastern group buying site GoNabit: The inside story

In what is probably the biggest acquisition in the Middle East since Yahoo bought Maktoob, GoNabit has earned itself yet another accolade, as the first e-commerce acquisition in the region, with LivingSocial on the other end of the deal.

GoNabit, one of several group buying sites in the Middle East, has a number of firsts to its name including being the first group-buying site in all its markets, with the exception of Egypt, as well as being the first group-buying site with an Arabic interface.

With several competitors vying for the top spot in the region, this latest acquisition may easily catapult GoNabit to number one. Founded in 2010, GoNabit is headquartered in the UAE, while rapidly expanding throughout the region with offices in Egypt, Lebanon, Jordan and Kuwait.

The story behind the deal

Speaking with Dan Stuart, GoNabit’s CEO and co-founder, he let us in on the details of the process, that has been on-going since the beginning of 2011.

“The deal has been a while in the making,” Stuart explained, “but we didn’t go out and look for it.” What GoNabit has been doing is to look for opportunities to ensure the growth of their business, with an expansion into new and emerging markets in the Middle East.

With several opportunities to choose from for an exit, there were three main factors that GoNabit took into consideration. “We had think about, ‘What does it mean for our company and its future? What does it mean for the shareholders? And what does it mean for the staff?’ It might be that with larger companies, it’s easy to think only about the shareholders,” Stuart said, explaining why that wasn’t the case for GoNabit. “Our staff all joined a young company and we sold them on the concept and the opportunity. It was very important to make a decision that was best for all involved.”

And as far as the end-user is concerned, they don’t have to worry about a huge upheaval of the GoNabit experience, which shouldn’t be changing drastically. Instead, what GoNabit plans to do is leverage as much as it possibly can from the Living Social platform, particularly from the technological perspective.

Using as much of the platform as is possible, while keeping local nuances in mind, GoNabit plans to get the best out of both worlds, bringing together a hybrid experience of the US-based group site, and the Middle Eastern experience of GoNabit.

The deal will, however, affect a lot more than GoNabit’s technological platform. “We’re in all these different markets in the Middle East, with the largest footprint in some. We want to maximise our presence in all of the markets we’re in.”

Egypt is one of GoNabit’s relatively new markets, but is important to them nonetheless, and a significant investment in GoNabit’s Egyptian business is expected. Considering the political climate in the country, Stuart comments, “Egypt ended up with a better climate because people want to get back to normal.”

Why did LivingSocial choose GoNabit?

GoNabit has set itself apart from other Middle Eastern group buying sites by starting with and staying true to a pure e-commerce model. While other group buying sites have adapted the model to the region, offering for example cash-on-delivery, GoNabit opted for credit card payments only. Stuart believes this was part of the GoNabit’s appeal to LivingSocial.

And despite e-commerce being relatively young in the region, in comparison to the rest of the world, he is an advocate of giving consumers the chance to try it out. “We won’t know if there is an interest in credit cards until you give buyers just one option,” he says.

That’s exactly what GoNabit did in Lebanon, for example, and were able to make 400 sales via credit card payments only for a restaurant voucher. Taking the Lebanese market into consideration, the number is impressive. Other Middle Eastern markets are more than ready to pay online using a credit card, with GoNabit scoring $150,000 in credit card sales for a Dubai hotel voucher. “This is very encouraging from an e-commerce perspective,” Stuart explains.

There are certain LivingSocial features, such as Instant Deals, which can’t work without a credit card on file, and so with GoNabit’s existing business model, it seems the two companies are a perfect fit. Stuart feels that LivingSocial saw the level of confidence that they have in the region, together with their entirely local teams on the ground in each country, allowing the US based company to feel confident about the growth potential in the region. “For them to enter on their own it would have been a challenge. Entering through us is what makes it appealing for them,” he said.

GoNabit’s understanding of the local markets will allow them to work on a case by case basis, so cash-on-delivery will be considered in some of GoNabit’s markets, such as Egypt. “We’ll always see what works best. We’re definitely taking localisation into account, and won’t necessarily use LivingSocial’s full platform. We’re only going to operate in English and Arabic, for example,” as opposed to Living Social’s English, French and Dutch interface.

Aside from offering platform and technology advantages, LivingSocial will be injecting GoNabit with the funding they need to ensure maximum growth, but Stuart was quiet on the details of the deal, saying only, “We are going to be well supported here.”

“A bit of validation” for the Middle East

So what does the GoNabit/LivingSocial deal mean for the region’s startups in general? Stuart says, “We hope we can continue to do well, and if nothing else, it’s a bit of validation. We’ll see a lot more from the market in the region. There’s a lot of young internet business.”

Following the Yahoo/Maktoob acquisition in 2009, this latest deal may help encourage more investors to take notice of the region. “This is the first major e-commerce acquisition in the region, and people are taking notice of the Middle East as a growth market,” Stuart said.

GoNabit’s future plans are to continue to maintain and grow their local presence, as well as to enter new markets in the region. “These changes are built into the long-term plan but with short-term timing,” and ultimately, it’s LivingSocial’s acquisition which will see to it that GoNabit’s schedule moves forward as quickly as possible.