Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022

saudi arabia is witnessing M&a activity across all sectors including healthcare, education, logistics, tourism, entertainment and sports. (SPA)
saudi arabia is witnessing M&a activity across all sectors including healthcare, education, logistics, tourism, entertainment and sports. (SPA)
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Updated 08 January 2022

Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022

Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022
  • “The Saudi market is probably one of the most active M&A markets in the region,” says financial expert
  • Vision 2030 is the “main driver” to the flurry of M&A activity in Saudi Arabia

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

The country’s growth stood at 6.8 percent for the third quarter. This is due to rising world demand for crude oil, ambitious Saudi Vision 2030 targets, cutting the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in fighting the COVID pandemic.

This has helped set Saudi Arabia for continued growth in merger and acquisitions in the coming year. 

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

Economist Robert Mogielnicki from the Arab Gulf State Institute in Washington underlines that the most obvious spaces to watch for M&A activity in Saudi Arabia are the energy and technology spaces. 

“Saudi Arabia possesses a comparative advantage in the energy sector and really wants to monetize its energy assets. Technology firms are thriving globally, and Saudi Arabia is pushing to become a global technology hub,” he added.

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 and sports, Environmental, Social, and Governance investing and green energy. 

There is also significant action in technology which acts as an enabler to other sectors, such as healthtech, edutech, and fintech.

FASTFACTS

The country’s growth stood at 6.8 percent for the third quarter. This is due to rising world demand for crude oil, ambitious Saudi Vision 2030 targets, cutting the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in fighting the COVID pandemic.

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

Tourism is expected to account for more than 10 percent of Saudi Arabia’s gross domestic product by 2030 through Neom — a $500bn futuristic city including a nature reserve and heritage sites on islands on the Red Sea alongside a major entertainment and sports project called Qiddiya. 

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

For Habib Aoun, partner at Broadgate Advisers, if one looks at ranking by deal value, energy and materials remain the most buoyant sectors by far, driven by strategic acquisitions often involving governmental entities such as ARAMCO. 

However, looking at deal count, rather than deal size, demand is big for assets in the consumers, healthcare, education and ICT sectors, both from strategic as well as financial investors. 

“Saudi Arabia has always been and remains one of the main 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 announced deals in the Kingdom, compared to $75 billion for the whole of the Middel East and North Africa region including Saudi Arabia.

The largest announced transactions this year were the acquisition of 49 percent stake in Aramco’s Oil Pipeline Co by a consortium led by EIG Global Energy; the acquisition of an Aramco portfolio of gas assets by US-based Air Products and ACWA Power, and the acquisition of a 50 percent stake in Saudi National Petrochemical Company by the Saudi Industrial Investment Group, according to Aoun. 

The Saudi British Bank, the HSBC Holdings affiliate, also completed its merger with Alawwal Bank. The year also saw the merger of National Commercial Bank and Samba Financial Group under the name of Saudi National Bank. SNB will be accounting for a market share of 25 percent, with a combined equity of SR120 billion ($31.96 billion)

Other than those large deals in the energy and materials sectors, there have been notable mid-cap deal activity including the sales of Naturepack Beverage Packaging to Norway-based Elopak; HSBC’s asset management business to Alawwal Invest;  Saudi Enaya Cooperative to Amana cooperative, and; Fourth Milling Co. to a consortium of Saudi strategic Agri investors. 

In education, King’s College Riyadh — an offshoot of the Dorset King’s College — became the first British boarding school to set up in Saudi Arabia. Additionally, Saudi Arabia’s Tourism Development Fund and London hospitality company Ennismore established a $400m fund to bring Ennismore’s lifestyle brands to the kingdom. 

“Mega deals like the merger between Samba-NCB as well as PIF acquisition of Newcastle United take all the publicity, however, there are many private deals of all sizes that are taking place below the radar,” says Younes. 

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

"One of the core pillars of Vision 2030 is localization of know-how. We have therefore seen many sub-industries across the wider manufacturing spectrum benefit from governmental initiatives — chemicals & materials, pharmaceuticals, etc. Other main sectors that are expected to benefit from Vision 2030 are infrastructure — including telecom, education, tourism — including F&B, and healthcare where investment is needed in order to support the anticipated economic growth. Covid did have an impact of course, mainly during H1 2020, but as is the case globally, most sectors have recovered well in 2021,” adds Aoun.

M&A activity in Saudi Arabia is both inbound and cross-border, agree specialists. 

One example is Saudi Arabian companies’ deals with their Omani counterparts worth $10 billion. 

“Within Saudi, investors and family offices are reviewing their portfolios and divesting from non-core assets to redirect funds to expanding core assets,” says Younes, adding: ”Cross-border is inbound and outbound where the key word is scaling in Saudi Arabia to capture the opportunities that are being presented as a result of Vision 2030. 

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

For Aoun, forecasts for M&A activity in the Kingdom are upbeat, driven by current oil price levels and the government’s continuous efforts to modernize the country and positioning Riyadh as the financial capital of the region.


Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’

Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’
Updated 21 May 2022

Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’

Dual impact from oil and non-oil sectors ‘to propel Saudi GDP growth by 10 percent’
  • Capital Economics says it will be the highest annual growth rate in over a decade, if this happens

RIYADH: Saudi Arabia’s gross domestic product is expected to grow by 10 percent this year, driven by increased activities in the oil and non-oil sectors, according to a recent note from Capital Economics.

The London-based independent research firm said it will be the highest annual growth rate in over a decade, if this happens.

Capital Economics expects the Kingdom to achieve the projected 10-percent growth due to a  significant increase in oil output combined with an expected loosening of fiscal policy that is set to encourage growth in the non-oil sector.

This projection follows the flash estimate for the first quarter GDP released earlier this month which showed the economy grew 2.2 percent since the last quarter of 2021, and 9.6 percent year-on-year — the highest growth rate in 11 years.

In regards to performance on a quarter-on-quarter basis, the growth is attributed to a 2.9 percent rise in oil GDP due to increased output on the back of the OPEC+ deal and a 2.5 percent growth in non-oil activities.

The increase in energy prices, which has been the largest since the 1973 oil crisis, together with the war in Ukraine — which altered the global patterns on trade, production and consumption — have contributed to this record GDP growth.

SPEEDREAD

The projection by London-based Capital Economicsfollows the flash estimate for the first quarter GDP released earlier this month which showed the economy grew 2.2 percent since the last quarter of 2021, and 9.6 percent year-on-year — the highest growth rate in 11 years.

Though Saudi Arabia still hasn’t met its OPEC+ quota, it is one of the few members raising produc- tion significantly. With other member countries struggling to meet their quotas and an expected decline in Russian output, Capital Economics predicts the Kingdom will increase oil production faster than anticipated under the current OPEC+ agreement.

According to the World Bank, energy prices are expected to rise more than 50 percent in 2022, before easing in 2023 and 2024.

As oil prices remain elevated, policymakers are expected to relax fiscal policy to stimulate non-oil activities, with a reduction in the value-added tax a possibility, the note from Capital Economics pointed out.

The Kingdom’s non-oil sector has also expanded at the fastest rate in over four years, according to the Saudi Arabia PMI survey.

This has been due to new business and activity that boosted sharply as client demand recov- ered after COVID-19.

The increase in business also came in line with Vision 2030, a reform plan that aims to diversify the country’s economic resources.

The 10 percent figure projected by Capital Economics is much higher than recent projections from the IMF, which predicted the Saudi economy to grow by 7.6 percent in 2022, as mentioned in its World Economic Outlook released in April 2022.

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Flash Entertainment plans a KSA office as sector booms

Flash Entertainment plans a KSA office as sector booms
Updated 21 May 2022

Flash Entertainment plans a KSA office as sector booms

Flash Entertainment plans a KSA office as sector booms
  • The new office will be a stand-alone; it will create jobs for Saudi citizens: CEO

Flash Entertainment plans to open a stand-alone office in Saudi Arabia within 3 months as the Kingdom is becoming a hotspot for events and leisure.

The entertainment firm, based in the UAE, is one of the Middle East’s leading live entertainment companies known for organizing some of the biggest global events, including several Formula One Abu Dhabi Grands Prix, the FIFA Club World Cup, UAE National Day, the AFC Asian Cup — arguably the biggest event in the region prior to the upcoming Qatar World Cup — and even Pope Francis’s visit to the UAE in 2019, which saw over 180,000 people in attendance.

“The new office will be the Saudi headquarters, it’s a stand alone, it’s not a branch,” the company’s CEO John Lickrish told Arab News. “We have a branch office in Dubai but here we wanted to set up our own office.” The new office will create 25 jobs for Saudi citizens. Lickrish who was in Riyadh for the fourth edition of the Saudi Entertain- ment and Amusement Expo this week was attending the event to touch base with the local commu- nity in the sector.

“I’m here to touch base with the local community suppliers and decision makers and try to make people aware that we’re entering the market,” he said. “We have done events here but now that we’re establishing an office, we want to integrate the GCC into a network of reliable promoters and suppliers that we can count on, and that’s the real goal of this.”

HIGHLIGHTS

This year’s event brought together some of the leading products, services, and technology brands in the industry from more than 25 countries, as part of the Kingdom’s plans to become the entertainment and leisure hub of the Middle East.

The show offers a global platform for top manufacturers and suppliers of entertainment and leisure products and services to do business with investors, distributors, government officials and owners of malls, cinemas and family entertainment centers, as well as key procurement professionals involved in small and mega Saudi entertainment and leisure projects.

The SEA Expo, held at the Riyadh International Convention and Exhibition Center, is the first trade event dedicated to Saudi Arabia’s burgeoning entertainment and leisure industry, with sellers from around the world showcasing the latest and greatest advances in the sector.

This year’s event brought together some of the leading products, services, and technology brands in the industry from more than 25 countries, as part of the Kingdom’s plans to become the entertainment and leisure hub of the Middle East.

The show offers a global platform for top manufacturers and suppliers of entertainment and leisure products and services to do business with investors, distributors, government officials and owners of malls, cinemas and family entertainment centers, as well as key procurement professionals involved in small and mega Saudi entertainment and leisure projects.

“The office will mostly have people from KSA,” Lickrish said. “We are going to be training them in our systems and processes, but they need to be here on the ground. Right now, we’re looking at 25 (local hires) based on our business plan for the next three years. From there, the sky is the limit.”

Flash Entertainment covers everything from event ideation, event management, marketing and communications, ticketing and sales, talent procurement and full operational and production delivery, as well as managing a portfolio of assets, including the Etihad Park and the multi-purpose state-of-the-art Etihad Arena on Yas Island, Abu Dhabi.

A location for the office has yet to be decided, however, with Jeddah and Dammam as potential cities to set up the shop.

“This is a big populous, so for us, that’s interesting, and it’s an emerging market in the region as well.” Lickrish said. “I think what is important for us now is really setting the foundations, making sure that the country and the region is represented as not only capable but excelling in this field. And then we’ll go on to the regional talent and develop the local markets.” According to Lickrish, the company created the first citywide integrated enter- tainment program for Formula One in 2009 that has since been emulated with subsequent grands prix around the world. “So that was an innovation that we brought into the global market.”

Lickrish himself has been in the entertainment business for over 30 years and in the region for 14. He hopes to bring his exper- tise to Saudi Arabia that plans to invest $64 billion in the devel- opment of the entertainment industry over the next decade as part of Vision 2030.

“My goal is to see a self- sustaining, vibrant, regional business that has international recognition and ultimately a footprint globally,” he said. “We want to be giving them a unique experience, as well as a cultural and international experience.”


FII Institute unveils new inclusive ESG framework and scoring methodology

FII Institute unveils new inclusive ESG framework and scoring methodology
Updated 20 May 2022

FII Institute unveils new inclusive ESG framework and scoring methodology

FII Institute unveils new inclusive ESG framework and scoring methodology
  • The institute is investing $527,515 in Timbeter, a leading green tech company specializing in timber measurement
  • Timbeter provides an AI-driven photo-optics app that accurately determines quantities of logs in an area with precise length and diameter

LONDON: The Future Investment Initiative Institute hosted a summit in London about Environmental, Social and Governance in emerging markets, involving world leaders, global CEOs, international investors, thought leaders and heads of sustainability.

The event unveiled a new inclusive ESG framework and scoring methodology to inform and accelerate investments in emerging economies.

The new methodology aims to give unbiased ratings for companies in emerging markets who currently receive less than 10 percent of ESG flows, despite being home to nearly 90 percent of the world’s population and roughly half of global GDP.

ESG rating agencies are one of the main barriers to increasing investment in emerging markets. Currently, mainstream rating agencies employ key perfor- mance indicators not relevant to emerging markets. The existing frameworks focus too much on disclosure and ignore year-over- year performance improvement.

The new framework, developed with the support of Ernst & Young, values performance improvement over time more than breadth of disclosure, emphasizing sectoral challenges rather than country risks, to ensure fair competition between companies in both emerging markets and developed markets.

The FII Institute is investing €500,000 ($527,515) in Timbeter, a leading green tech company specializing in timber measurement. Timbeter provides an artificial intelligence-driven photo-optics application that accurately determines quantities of logs in an area with precise length and diameter.

Timbeter is a software as a service workflow management solution for the timber industry, founded in 2013 at the Nordic Hackathon by Anna-Greta Tsakhna, its CEO, and Martin Kambla, CTO.

Forestry continues to be an important and controversial issue, with world forests decreasing by a third in size over the last century due to reckless practices.

This technology is key to a more proactive management of forests and a more sustainable sector.

Meanwhile, the ESG white paper is designed to encourage greater ESG investment in emerging markets. It calls on investors to publicly commit to raising the portion of capital allocated to emerging markets from less than 10 percent today to a minimum of 30 percent of committed and invested capital by 2030. It also calls on governments to encourage emerging market-headquartered companies to become more proactive at disclosing relevant information through their normal reporting channels.

Richard Attias, CEO of the FII Institute, said: “Central to our work at FII Institute is to increase awareness about the weaknesses in current ESG standards and their impact on global sustainability prospects, and to advocate for an inclusive and equitable application of ESG through driving real action by key players globally.

“ESG has been one of the fastest-growing investment strategies over the past few years, accounting for one-third of all assets under management. But this growth is not even. Working with our partners at EY, we identified and removed the barriers to ESG investment in emerging markets, which are often overlooked,” he added.

“By launching the Inclusive ESG Framework and Scoring Methodology, investing in a global sustainable solutions company, and publishing our recent ESG white paper — we are making tangible actions to create a better future for humanity. And we are confident that our partners around the world will help us drive those actions further.”


Saudi sovereign wealth fund considers new hydrogen company; developing 70% of vision 2030 renewable target

Saudi sovereign wealth fund considers new hydrogen company; developing 70% of vision 2030 renewable target
Updated 20 May 2022

Saudi sovereign wealth fund considers new hydrogen company; developing 70% of vision 2030 renewable target

Saudi sovereign wealth fund considers new hydrogen company; developing 70% of vision 2030 renewable target

RIYADH: Saudi Arabia’s Public Investment Fund is now establishing a new hydrogen company and it will be like a mediator in many of the PIF’s initiatives.

Speaking in a regional forum on ESG organized by the Future Investment Initiative in London, the governor Yasir Al-Rumayyan said the sovereign wealth fund  plans to develop 70 percent of renewable energy targets under vision 2030.

The fund owns companies that are already developing hydrogen such as NEOM and Aramco. 

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PIF governor and BlackRock’s CEO leads discussions on ESG in emerging markets in FII’s first regional summit

PIF governor and BlackRock’s CEO leads discussions on ESG in emerging markets in FII’s first regional summit
Updated 20 May 2022

PIF governor and BlackRock’s CEO leads discussions on ESG in emerging markets in FII’s first regional summit

PIF governor and BlackRock’s CEO leads discussions on ESG in emerging markets in FII’s first regional summit

RIYADH: The Future Investment Initiative Foundation will host its first ever regional summit on Friday, in Rosewood London, England, entitled Inclusive Environmental, Social and Corporate Governance in Emerging Markets.

The most prominent participants in the event include the FII Chairman and Governor of the Public Investment Fund, Yasser Al-Rumayyan, Egypt’s Minister of Environment, Yasmine Fouad and Blackrock CEO Larry Fink.

The summit will bring together international investors, world leaders, thought leaders, policy makers, global CEOs, and chiefs of sustainability to discuss and shape the future of ESG, particularly in emerging markets.

“The planet has major problems with climate, with destruction of nature, peace and security. But we also have tremendous resources, including our common humanity,” Executive Director of the FII Institute, Richard Attias said.

“We believe that ESG is an important tool to bring us together and channel capital to meet these challenges,” he said.

Using ESG standards to make investment decisions is a global boom, with assets expected to reach $53 trillion, about a third of global assets under management, by 2025, a statement showed.

Still, the lack of a framework for the effective implementation of ESG in emerging economies represent a stumbling block for investors. 

The FII says it will finally have the tool needed to develop sustainable investment strategies in these markets, through its proprietary measurement framework, developed in collaboration with investors, global companies, and FII’s strategic partners.

The Foundation works to impact humanity across four focus areas: artificial intelligence, robotics, education, health care, and sustainability.

The event is part of a series of events hosted by the Foundation, which will culminate in the sixth edition of the annual FII Forum in Riyadh, Saudi Arabia, in October.

 

The PIF view

The PIF understands that being engaged in ESG is the right thing to do, Rania Nashar, head of compliance and governance at the fund, told the conference.

PIF companies are announcing emission reductions but it's not only about the destination, it is about the journey, she added.

“We approach the ESG through multiple aspects. Through creating platforms, sponsoring events and launching initiatives,” she said.