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Mergers & Acquisitions: Trends & Visions In Saudi Arabia

Mergers and Acquisitions (M&A) have been increasing in Saudi Arabia as the country undergoes economic diversification and privatisation initiatives. The nation is currently one of the most active markets for M&A in the region. For international companies seeking new opportunities, Saudi Arabia presents a unique opportunity to invest in a country with a young and growing population as well as a rapidly expanding economy.

However, the legal and regulatory environment for M&A in Saudi Arabia is still maturing and businesses should ensure they have a clear understanding of the relevant laws before proceeding with any transaction. Early and careful preparation is essential to ensure a successful merger or acquisition in Saudi Arabia.

Current M&A Trends In Saudi Arabia

2020 saw a 73.4% increase in deal value in comparison to 2019, representing a growing trend of high-value M&A activity across the region. In 2021, this pattern continued, with Saudi Venture Capital reporting that the VC ecosystem witnessed 88 deals valued at US$152 million compared to 2019, which closed at 65 deals valued at US$98 million.

Saudi Arabia had $44 billion worth of announced deals in 2021. Compared to the M&A activity of the entire Middle East and North Africa region in that same time period – $75 billion. Saudi Arabia stands out as being a key market for M&A.

This trend is set to continue in the coming years as the Saudi economy grows and the government continues to encourage privatisation and foreign investment. The highest value deals are being seen in the energy and materials sector, but when it comes to deal count, most mergers and acquisitions have been spread across the consumer, healthcare, education, and ICT sectors.

Legal Considerations During A Merger Or Acquisition

When conducting a merger or acquisition in Saudi Arabia, businesses must consider the relevant legal and regulatory framework. As the regulatory body for M&A activity in the Kingdom, all mergers and acquisitions must be carried out through the Ministry of Commerce, including the final issue of amended commercial registration.

In Saudi Arabia, most private M&A transactions are structured as share purchase deals in which the share capital of the target is acquired by the buyer from the seller. Saudi's M&A Regulations permit payment of a break fee if an acquisition offer fails, but this may not exceed 1% of the offer value and it must be disclosed in the offer document.

Public M&As are regulated by the Capital Market Authority (CMA). Before a public transaction may proceed, the bidder and the target must appoint a CMA approved financial adviser and an independent legal adviser.

If a non-Saudi/non-GCC national is to be involved in any M&A activity, they must first apply for the relevant licensing. The Saudi Ministry of investment (MISA) – formerly known as SAGIA – is the main governmental body responsible for investment in the Kingdom. MISA provides licenses and approvals for foreign investors and oversees the implementation of investment regulations.

The Saudi Central Bank (SAMA) — previously referred to as the Saudi Arabian Monetary Authority — is responsible for regulating the banking and financial services sector in the Kingdom. SAMA must approve any merger or acquisition involving a Saudi bank or financial institution.

If a merger or acquisition may result in some form of "economic concentration", then the General Authority for Competition (GAC) must be notified 90 days before the closing of the M&A transaction.

Why Businesses Should Prepare Early On

Businesses should prepare early on when considering a merger or acquisition in Saudi Arabia. The legal and regulatory framework is still maturing and there is a lack of precedent in many areas. This can make it difficult to predict the outcome of a particular transaction. Early preparation will allow businesses to identify any potential risks and take steps to mitigate them. It’s also important to seek professional advice from a qualified lawyer or advisor who is familiar with the Saudi M&A market. They’ll be able to guide you through the process and ensure that all the necessary legal and regulatory approvals are obtained.

Mergers and acquisitions can be a complex and time-consuming process. However, with the right preparation and guidance, they can be a valuable tool for businesses looking to grow in Saudi Arabia. M&A will play a key role in the development of the Kingdom's economy as it continues to diversify, with increased private sector participation and foreign investment.

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