The case for consolidation: Tech startups in MENA

It has been a difficult period for technology startups. While everyone will use the COVID-19 crisis as the driver of many company failures, the writing has been on the wall from as early as March 28, 2019. 

That was the day Lyft went public. 

A bit over a month later, on the day Uber went public, Lyft was trading 30% below its IPO price. Uber has not fared any better, with the stock price deteriorating since its IPO. (As of April 3rd, Uber is down 49% and Lyft is down 69%). Then, during August 2019, WeWork began its IPO process. The company went from an initial valuation of $47 million to $8 billion and required a bailout from its largest investor, SoftBank. Today it is arguably worth much less, if not zero.  

All of these events resulted in a more cautious financing environment globally with investor focus shifting from ‘growth at any cost’ towards ‘unit economics and the path to profitability’. The current COVID-19 pandemic and inevitable recession have only exacerbated & validated this approach. Capital, which was already scarce, will and should only go to those startups that can demonstrate strong financial fundamentals at scale. 

This new reality requires entrepreneurs to ask themselves three pertinent questions: 

  1. Does my business generate cash at scale?

  2. How long will it take me to reach that scale?

  3. How can I improve my financial performance and scale sooner? 

Entrepreneurs, and particularly within MENA, should strongly consider consolidation when seeking answers to these questions. Merging two compatible companies can unlock substantial value by accelerating growth, improving operating margins, and shortening the path to profitability. This is particularly relevant in markets that are less cost efficient and more difficult to scale such as those within MENA. 

Merger synergies can be classified under two primary categories (see table below):

  1. Cost synergies: These are benefits that reduce fixed and variable costs through combining people, capabilities, and assets.

  2. Revenue synergies: These are benefits derived from combining the unique market strengths of each company such as customer base, sales force, products, geographies, or channels. 

Table: Summary of hypothetical merger and related synergies

Synergy analysis, integration planning, change management, and strong leadership can significantly increase chances of success. Consolidation does not come without risk but if executed effectively it can lead to significant shareholder value. At a time like this, consolidation may not be a luxury but a necessity to survive and possibly thrive.


E-commerce deals in MENA-based startups have tripled from 2016 to 2019. Find out more details behind this trend and many more in our 2019 MENA E-commerce Venture Investment Report HERE