Update: This deal was made official early on March 26.
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The fact that Uber may buy Careem isn’t surprising. Crunchbase News reported last September that the deal between the ride-hailing competitors might take place. What is a little unexpected is the currently-expected purchase price.
In September, a buyout was said to value Careem at $2 billion to $2.5 billion. But now, per Bloomberg, Uber is expected to pay $3.1 billion for the company with a mix of cash ($1.4 billion) and convertible notes ($1.7 billion). The notes will be convertible into Uber shares at a price equal to $55 per share, according to the term sheet seen by Bloomberg.
Founded in 2012, Careem was valued at about $2 billion when it raised $200 million last October. In total, the startup has raised nearly $772 million from the likes of Kingdom Holding Co. (the investment vehicle of Saudi Prince Alwaleed bin Talal), Didi Chuxing and San Francisco-based Lumia Capital. According to Fortune, Careem has over a million drivers spread across more than 90 cities and 15 countries in the Middle East and Northern Africa. Over time, the company has diversified its business to include food and package deliveries, bus services, scheduled rides, and credit transfers.
For example, in February 2018 Careem acquired RoundMenu, an app for listing restaurants and ordering food, for an undisclosed sum. Then in July 2018, the company announced it would raise and spend $150 million to launch a food delivery business that competes with Uber’s own Uber Eats platform
The news comes in advance of Uber’s long-awaited initial public offering, which is expected to value the company at as much as $120 billion, though the final figure is far from set. Lyft, a rival to Uber in its domestic market, is expected to debut first. Its performance may impact Uber’s eventual starting public valuation.
The Careem deal, if consummated, could help Uber’s short-term growth rate. As we’ve reported recently, Uber has seen its growth rate, as measured in percentage terms, decline. While the company remains stiffly unprofitable, slowing growth could prove difficult to square with the valuation it covets.
But with Careem added, perhaps Uber can accelerate its revenue growth in the short term. Given that the smaller company is just that, it’s unclear from this distance what percent of Uber’s revenue Careem represents as an independent company, but the addition is likely welcome regardless.
Uber has long been valued on growth over profitability. And while it remains so far from even breakeven status, buying growth seems reasonable, provided a fair price. The American ride-hailing firm will soon raise more capital in its debut, making a $1.4 billion cash price for Careem palatable.
If the Careem deal will delay Uber’s IPO isn’t clear. More when the transaction closes.
Illustration: Li-Anne Dias