German food delivery company Delivery Hero acquired the Dubai-based online grocery platform Instashop as it looks to further expand within the Mena region.
Delivery Hero said on Thursday that it acquired all outstanding shares of Instashop at a valuation of $360 million (Dh1.3 billion). It will pay an initial price of $270m and will pay the remaining amount if Instashop meets its profitability targets.
Instashop will use the funding to launch in new markets and grow its operations, Delivery Hero said.
"As a leading player in the grocery segment, InstaShop has built a service customers love, and their expertise is a great addition to our quick commerce expansion," said Niklas Östberg, chief executive and co-founder of Delivery Hero.
As per the deal, Instashop will operate as an independent brand under its founders but will complement Delivery Hero's operations in the region.
Launched in 2015 by John Tsioris and Ioanna Angelidaki, Instashop operates in the UAE, Qatar, Egypt, Lebanon and Bahrain and partners with 1,500 vendors. The online grocery platform has an annualised gross merchandise volume of $300m, according to Delivery Hero.
"The partnership with Delivery Hero is a great opportunity for us to continue to grow our business and put the group's expertise to use," Mr Tsioris said.
Although Instashop is "focused on driving growth within its current geographies, joining Delivery Hero also opens up future complementary opportunities of expanding its footprint globally", the company said.
Delivery Hero owns and operates Middle East-based food ordering platform Talabat, which has gradually acquired its regional rivals to consolidate its operations and shore up its bottom line in a highly fragmented market.
Last year, it bought the Middle East operations of its major competitor Zomato but has allowed it to retain its brand identity. However, it absorbed some of its earlier acquisitions such as Kuwait's food delivery platform Carriage and Egypt's Otlob under Talabat.
Instashop's acquisition could help Delivery Hero cement Talabat's grocery delivery operations in the region and advance its strategy of quick commerce, the company said.
The grocery retail market across the Mena region is forecast to grow at 9.5 per cent this year, according to data from Euromonitor, to a value of $426.5bn. However, the online grocery market is still largely untapped. According to a report by Wamda, the e-grocery market in the GCC and Egypt is currently worth $200m and accounts for less than 1 per cent of the region's burgeoning e-commerce industry.
However, the coronavirus pandemic has shifted consumption trends as stay-at-home measures forced people to rely on digital platforms like Instashop and other e-commerce giants such as Noon and Amazon.
This has also increased the investment appeal of such companies. Earlier this year, Saudi Arabia-based online grocery platform Nana raised $18m from a funding round led by Saudi Technology Ventures. Co-investors in the funding round included Middle East Venture Partners, Wamda Capital, Watar Partners and SVC, as well as the company’s existing angel investors.