NAVIGATING THE MERGERS AND ACQUISITIONS PROCESS IN SAUDI ARABIA

This article has been researched and written by Marharyta Skavronska and the team at Creation Business Consultants and has not used AI in generating this article.

In the Kingdom of Saudi Arabia (KSA), Mergers and Acquisitions (M&A) have become a crucial aspect of the commercial environment. For companies looking for expansion prospects, knowing the M&A process is essential as the Kingdom’s economy continues to diversify and draw foreign investments.

This article provides an overview of the Saudi Arabian M&A scene, encompassing essential elements and significant factors to consider.

UP TO DATE FACTS ON M&A DEALS IN SAUDI ARABIA

Economic reforms and the Saudi Vision 2030 have led to a major surge in M&A activity in this industry in recent years. The nation offers a welcoming environment for investors, with programs focused at advancing industries including technology, healthcare, and tourism. Additionally, the easing of foreign ownership restrictions have prompted foreign investors to explore opportunities in the Saudi market. The launch of privatisation and national transformation programs as part of the Saudi Vision 2030 has increased M&A activity in the region. A few notable examples of recent M&A in Saudi Arabia are:

SABIC with Saudi Aramco
Souq.com by Amazon.
Initial Public Offerings (IPOs) and dual listings increased on the Saudi Stock Exchange (Tadaul), providing exit opportunities for investors involved in M&A deals.

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WHAT IS THE M&A PROCESS IN SAUDI ARABIA?

The M&A process in Saudi Arabia encompasses several steps that starts off with the identification of possible targets, due diligence, negotiations and deal closing. To successfully negotiate the complexities of regional rules, cultural quirks, and deal structures, it is imperative to enlist the help of a registered corporate service provider, legal and or financial consultants. The M&A process in Saudi Arabia includes:

Finding prospective M&A candidates through market research and sector analysis.
Executing accurate due diligence.
Assessing the target company’s operational, legal, and financial elements; and negotiating the deal’s conditions, such as the purchase price, the payment structure, and the post-acquisition arrangements.
Getting the appropriate regulatory licenses from organisations like the Capital Market Authority (CMA) and the Saudi Arabian Ministry of Investment.
Closing the deal and implementing post-merger integration strategies that include drafting and executing definitive agreements, such as share purchase agreements or merger agreements.

ARE THERE ANY CORPORATE RESTRICTIONS ON SHARE TRANSFERS IN PRIVATE COMPANIES DUE TO SAUDI ARABIA NEW COMPANIES LAW?

The Saudi Arabia New Companies Law which came into effect on 19 January 2023 and has replaced the previous Company Law of 2015 and the Professional Companies Law of 2019 imposes certain restrictions on the transfer of shares to private companies. Acquisitions exceeding certain thresholds may be subject to General Authority For Competition (GAC) approval. In addition, certain areas such as defense and security are subject to additional regulatory oversight to ensure the protection of national interests.

The main company structuring options involved with M&A include:

Limited Liability Company (LLC) – The most common structure used for private acquisitions because of the flexibility of ownership and management.
Public limited company (JSC) -Typically involved in large acquirements and is subject to more stringent regulatory requirements.
Joint ventures and strategic alliances with local partners – Foreign investors can establish a presence in Saudi Arabia through joint ventures and strategic alliances with local partners.

ARE THERE ANY CORPORATE RESTRICTIONS ON STOCK TRANSFERS IN PRIVATE COMPANIES?

Some restrictions under the new Companies’ Law on the transfer of shares in a private company include:

Acquisitions exceeding certain financial thresholds which may require approval from the GAC to ensure fair competition.
Certain sectors, such as banking, insurance, and telecommunications, have specific rules regarding the transfer of property and shares to protect national interests.

HOW TO ACQUIRE A LIMITED LIABILITY COMPANY IN SAUDI ARABIA?

Acquisitions of privately held companies in Saudi Arabia can be made in several ways, including asset purchases, stock purchases, and mergers. Each approach has its own legal and financial implications, and choice depends on factors such as tax considerations, liabilities, and strategic goals.

HOW TO PURCHASE A PRIVATE COMPANY IN SAUDI ARABIA?

Asset purchases involve the acquisition of specific assets and liabilities of the target company, allowing flexibility in choosing the components required.
A stock purchase acquires a majority or minority stake in a target company, giving control and access to an existing business.
A merger combines two or more companies into one entity, creating synergies and operational efficiencies.

In addition to the core elements above, other areas relevant to the M&A process in Saudi Arabia include valuation methodologies, transaction financing options, cultural considerations, post-merger integration and dispute resolution mechanisms. These aspects play an important role in the success of any M&A deals.

CONCLUSION

Managing the M&A process in Saudi Arabia requires a thorough understanding of the legal, regulatory, and cultural landscape. M&A deal opportunities will increase as the country continues to attract foreign investment and the economy diversifies. By pursuing the right strategy and seeking expert advice, businesses can unlock their potential for growth and success in the Saudi market.

Are you considering a Saudi M&A transaction? Perhaps you are an established business owner or a foreign company looking to enter the Saudi market? Get in touch with our Corporate Structuring and Tax Department for more information on the complete process email [email protected] or call KSA at +966 56 865 2329 UAE +97148786240.