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Saudi Arabia’s ‘Unprecedented Growth’ Expected to Solidify M&A Leader Position in 2022

RIYAD: Saudi Arabia has become one of the most attractive markets for international companies looking for new mergers and acquisitions, and it is expected to maintain its position in 2022.

The country’s growth stood at 6.8% for the third quarter. This is due to the growing global demand for crude oil, the ambitious goals of Saudi Vision 2030, the reduction of the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in the fight against the COVID pandemic.

This has enabled Saudi Arabia to continue its growth in mergers and acquisitions in the coming year.

“The Saudi market is probably one of the most active M&A markets in the region, along with the United Arab Emirates and Egypt,” said Fikry Younis, Riyadh-based partner of Lumina Capital Advisers.

Economist Robert Mogielnicki of the Arab Gulf State Institute in Washington points out that the most obvious spaces to watch for mergers and acquisitions in Saudi Arabia are the energy and tech spaces.

“Saudi Arabia has a comparative advantage in the energy sector and is very keen to monetize its energy assets. Tech companies are thriving globally and Saudi Arabia is striving to become a global tech hub, ”he added.

Saudi Arabia is witnessing mergers and acquisitions across sectors, Younes said, with a focus on social infrastructure – including healthcare, education and logistics – tourism, entertainment and sports , environmental, social and governance investments and green energy.

There is also significant action in technology which acts as a catalyst for other sectors, such as health technology, educational technology and financial technology.

QUICKFACTS

The country’s growth stood at 6.8% for the third quarter. This is due to the growing global demand for crude oil, the ambitious goals of Saudi Vision 2030, the reduction of the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in the fight against the COVID pandemic.

The most significant transactions announced this year were the acquisition of 49% of Aramco’s Oil Pipeline Co. by a consortium led by EIG Global Energy; the acquisition of a portfolio of gas assets from Aramco by the US companies Air Products and ACWA Power, and the acquisition of a 50% stake in the Saudi National Petrochemical Company by the Saudi Industrial Investment Group.

Tourism is expected to account for more than 10% of Saudi Arabia’s gross domestic product by 2030 thanks to Neom, a futuristic $ 500 billion city comprising a nature reserve and heritage sites on islands in the Red Sea, as well. than a big entertainment and sports project called Qiddiya.

The Kingdom plans to invest more than $ 1 billion in the tourism sector over the next 10 years.

For Habib Aoun, partner at Broadgate Advisers, if we look at the classification by value of transactions, energy and materials remain by far the most promising sectors, driven by strategic acquisitions often involving government entities such as ARAMCO.

However, when one considers the number of transactions, rather than their size, demand is important for assets in the consumer, health, education and ICT sectors, both from strategic investors. than financial.

“Saudi Arabia has always been and remains one of the region’s main M&A markets, thanks to its large population, numerous government initiatives and the recent recovery in oil prices,” Aoun said.

The expert estimates that in 2021, there were $ 44 billion in agreements announced in the Kingdom, compared to $ 75 billion for the entire Middle East and North Africa region, including including Saudi Arabia.

The most significant transactions announced this year were the acquisition of 49% of Aramco Oil Pipeline Co by a consortium led by EIG Global Energy; the acquisition of a portfolio of gas assets from Aramco by the American companies Air Products and ACWA Power, and the acquisition of a 50% stake in the Saudi National Petrochemical Company by the Saudi Industrial Investment Group, according to Aoun .

Saudi British Bank, a subsidiary of HSBC Holdings, has also finalized its merger with Alawwal Bank. The year also saw the merger of the National Commercial Bank and the Samba Financial Group under the name Saudi National Bank. SNB will account for 25 percent market share, with combined capital of SR 120 billion ($ 31.96 billion)

In addition to these large transactions in the energy and materials sectors, there was notable activity in mid-cap transactions, including the sale of Naturepack Beverage Packaging to Norwegian company Elopak; HSBC’s asset management activity at Alawwal Invest; From the Saudi Enaya cooperative to the Amana cooperative, and; Fourth Milling Co. to a consortium of strategic Saudi agricultural investors.

In education, King’s College Riyadh – an offshoot of Dorset King’s College – became the first British boarding school to settle in Saudi Arabia. Additionally, Saudi Arabia’s Tourism Development Fund and London-based hotel company Ennismore have established a $ 400 million fund to bring Ennismore lifestyle brands to the kingdom.

“Mega-deals like the Samba-NCB merger as well as PIF’s acquisition of Newcastle United are getting all the publicity, however, there are many private deals of all sizes going under the radar,” Younes said.

Without a doubt, Vision 2030 is the main driver of the wave of M&A activity in Saudi Arabia, Younes says.

“One of the fundamental pillars of Vision 2030 is the localization of know-how. So we’ve seen many sub-industries across the broader manufacturing spectrum benefit from government initiatives – chemicals and materials, pharmaceuticals, etc. of Vision 2030 are the infrastructure – including telecommunications, education, tourism – including catering and healthcare where investments are needed to support expected economic growth. Covid has of course had an impact, mainly in the first half of 2020, but as is the case in the world, most sectors have recovered well in 2021, ”adds Aoun.

Saudi Arabia’s M&A activity is both inbound and cross-border, experts agree.

An example is that of the agreements concluded between Saudi companies and their Omani counterparts for a value of 10 billion dollars.

“Within Saudi Arabia, investors and family offices are reviewing their portfolios and divesting non-core assets to redirect funds to expanding core assets,” Younes said, adding: to seize the opportunities that are presented following Vision 2030.

“International investors are investing in Saudi Arabia in order to benefit from unprecedented growth, especially with the challenges many face in their home countries: COVID, supply chain challenges, inflation, etc. Local investors who invest abroad invest in the order bring expertise and capabilities from abroad to Saudi Arabia.

For Aoun, the outlook for M&A activity in the Kingdom is optimistic, driven by current levels of oil prices and the government’s continued efforts to modernize the country and position Riyadh as the region’s financial capital.


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