The unprecedented growth of Saudi Arabia is set to cement its position as a leader in mergers and acquisitions in 2022.
RIYADH: Saudi Arabia has become one of the most attractive markets for global companies seeking new mergers and acquisitions, and is set to maintain its position in 2022.
The country’s growth was 6.8 percent in the third quarter. This is due to the high global demand for crude oil, the ambitious goals of Saudi Vision 2030, and the reduction of the Kingdom’s dependence on selling hydrocarbons through the development of non-oil sectors, as well as progress in combating the Covid pandemic.
This has helped position Saudi Arabia for continued growth in mergers and acquisitions in the coming year.
“The Saudi market is perhaps one of the most active M&A markets in the region, along with the UAE and Egypt,” said Fikri Younes, partner at Lumina Capital Advisers in Riyadh.
Economist Robert Mogielnicki of the Arab Gulf State Institute in Washington asserts that the most obvious places to watch M&A activity in Saudi Arabia are energy and technology.
Saudi Arabia has a comparative advantage in the energy sector and really wants to monetize energy assets. Technology companies are thriving globally, and Saudi Arabia is striving to become a global technology hub.”
According to Younes, Saudi Arabia is witnessing M&A activity across all sectors, with a focus in social infrastructure – including healthcare, education and logistics – tourism, entertainment, sports, environmental and social investment, governance and green energy.
There is also significant action in technology that acts as an enabler for other sectors, such as healthtech, edutech, and fintech.
Tourism is expected to make up more than 10 percent of Saudi Arabia’s GDP by 2030 through NEOM – a $500 billion futuristic city including a nature reserve and heritage sites on islands on the Red Sea along with a major entertainment and sports project called Qiddiya. .
The Kingdom plans to invest more than $1 trillion in the tourism sector over the next ten years.
For Habib Aoun, partner at Broadgate Advisers, if one looks to order by deal value, energy and materials remain by far the most prosperous sectors, driven by strategic acquisitions that often include government entities such as Aramco.
However, given the number of deals, rather than the size of the deal, the assets in the consumer, healthcare, education and ICT sectors are in high demand, both from strategic and financial investors.
“Saudi Arabia has always been and remains one of the key M&A markets in the region, driven by its large population, numerous government initiatives, and the recent recovery in oil prices,” says Aoun.
The expert estimates that in 2021, there were $44 billion of deals announced in the Kingdom, compared to $75 billion for the entire Middle East and North Africa region including Saudi Arabia.
The biggest deal announced this year was the acquisition of a 49 percent stake in Aramco Oil Pipelines Company by a consortium led by EIG Global Energy. US-based Air Products and ACWA Power will acquire Aramco’s portfolio of gas assets, and the Saudi Industrial Investment Group will acquire a 50% stake in the Saudi National Petrochemical Company, according to Aoun.
The Saudi British Bank, a subsidiary of HSBC Holdings, has also completed its merger with Alawwal Bank. The year also saw the merger of the National Commercial Bank and Samba Financial Group under the name of the Saudi National Bank. The Swiss National Bank will capture a 25 percent market share, with combined equity of 120 billion Saudi riyals ($31.96 billion)
Other than those large deals in the energy and materials sectors, there has been notable medium-volume deal activity including sales of Naturepack Beverage Packaging to Norway-based Elopak; Asset management business from HSBC to First Investment; Saudi Inaya Cooperative Society with Amana Cooperative, and; Fourth Mills Company for a consortium of Saudi strategic agricultural investors.
In the field of education, King’s College Riyadh – a branch of Dorset King’s College – became the first British boarding school to be established in Saudi Arabia. In addition, the Saudi Arabia Tourism Development Fund and London-based hospitality company Ennismore have created a $400 million fund to bring Ennismore lifestyle brands to the kingdom.
“Massive deals like the Samba-NCB merger as well as PIF’s acquisition of Newcastle United take all the hype, however, there are many private deals of all sizes going under the radar,” says Yunus.
Younis says Vision 2030 is undoubtedly the main driver of the turmoil in M&A activity in Saudi Arabia.
“One of the main pillars of Vision 2030 is the localization of knowledge. So we have seen many sub-industries across the broader manufacturing scale benefit from government initiatives – chemicals, materials, pharmaceuticals, etc. Other key sectors that are expected to benefit from Vision 2030 are infrastructure – including That telecommunications, education and tourism – including food and beverages and healthcare where investment is needed in order to support projected economic growth.Covid had an impact of course, mainly during H1 2020, but as is the case globally, most sectors recovered well in the year 2021.
Experts agree that M&A activity in Saudi Arabia is both domestic and cross-border.
An example of this is the deals of Saudi companies with their Omani counterparts worth $10 billion.
“Within Saudi Arabia, investors and family offices are reviewing their portfolios and divesting from non-core assets to redirect funds to expand core assets,” says Younes, adding, “Across borders incoming and outgoing where the key word is to expand into Saudi Arabia to seize the opportunities that It is presented as a result of Vision 2030.
“International investors are investing inland into Saudi Arabia to benefit from unprecedented growth, especially with the challenges many are facing in their home countries: the coronavirus, supply chain challenges, inflation, etc. Local investors investing abroad are investing in the system to bring expertise and capabilities from abroad into Kingdom Saudi Arabia “.
For Aoun, the outlook for mergers and acquisitions in the kingdom is promising, driven by current oil price levels and the government’s ongoing efforts to modernize the country and position Riyadh as the region’s financial capital.