NAVIGATING THE MERGERS AND ACQUISITIONS PROCESS IN SAUDI ARABIA

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

The landscape of Mergers and Acquisitions (M&A) has become an area of importance for the Kingdom of Saudi Arabia (KSA) and its commercial environment. M&A and the process of M&A are of vital importance for businesses searching for market expansion, particularly in light of the KSA diversifying its economy and attracting foreign investment.

The article explores the Saudi Arabian M&A landscape – including key elements and important considerations.

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

The M&A activities in this industry have witnessed an unprecedented growth with Saudi Vision 2030 and economic reforms coming into play. Saudi Arabia considers a favourable business environment through investment programs that account for industrial growth in technology, healthcare, and tourism. Foreign investors always used to shy away from the Saudi market due to much capital investment restriction until the foreign ownership rules changed and allowed such investors. Mergers and acquisitions within the region have been induced by the privatisation and national transformation initiatives of Saudi Vision 2030. Some prominent instances of recent M&A transactions happening in Saudi Arabia include:

• SABIC with Saudi Aramco.
• Souq.com by Amazon.
• The IPOs and Dual listings on the Saudi Stock Exchange (Tadaul) have further provided exit opportunities through M&A for their investors.

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:

• The identification of suitable potential merger and acquisition (M&A) targets occurs through sector analysis and market research.
• The step of conducting appropriate due diligence processes occurs as a key step.
• The analysis process occurs through reviewing operational, legal and financial aspects of the target company while negotiating the
• purchase price and terms of payment and arrangements after acquisition.
• The acquisition of necessary licenses from the regulatory agency like the Capital Market Authority (CMA) and the Saudi Arabian
• Ministry of Investment is required.
• The last step of the deal includes deal closure and developing and executing specific definitive agreements such as share purchase agreements or merger agreements for post-merger integration plans.

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

The New Saudi Arabia Companies Law which came into effect on 19 January 2023 and superseded the previous Company Law of 2015 and the Professional Companies Law of 2019 imposes some limits on share transfers to private companies. Some acquisitions over certain thresholds will be subject to General Authority for Competition (GAC) approval. In addition, certain areas such as defence 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) – Most commonly used structure for private acquisitions owing to the flexibility in ownership and management.
• Public limited company (JSC) – Typically in big acquisition and with more regulatory requirements.
• Joint ventures and strategic alliances with local partners – The foreign investor might assert its 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 concerning share transfer in a private company are:

• Acquisitions above certain financial thresholds that may require GAC approval to safeguard genuine competition.
• Certain sectors like banking, insurance, and telecommunications have a set of rules with respect to the transfer of property and shares to ensure protection of national interests.

HOW TO ACQUIRE A LIMITED LIABILITY COMPANY IN SAUDI ARABIA?

In Saudi Arabia, acquisitions of privately held companies may be accomplished by way of several approaches (e.g., purchase of assets, purchase of stock, and merge). Each way bears its legal and financial consequences; one chooses based on tax considerations, potential liabilities, or strategic goals.

HOW TO PURCHASE A PRIVATE COMPANY IN SAUDI ARABIA?

• Asset Purchases refer to sale of certain assets and liabilities by a target company in need of flexibility to discerning what components he requires.
• Stock Purchase refers to buying majority or minority interests in a target company to obtain control and 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 sound knowledge of laws, regulations, and culture at hand. As the country is increasingly open to foreign investments and the economy moves toward diversification, the M&A opportunities will emerge and multiply. If hydra-headedly leveraged with an appropriate strategy supported by professional advice, any company can unleash the real power of growth and success in the Saudi market.

Are you considering an M&A transaction in Saudi Arabia, or are you already a business firm contemplating entry into the Saudi market? Get in touch with our Corporate Structuring and Tax Department for more information on the complete process at [email protected] or call KSA at +966 56 865 2329 UAE +97148786240.