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.


Gold demand hits highest level in more than two years

Gold demand hits highest level in more than two years
Updated 22 sec ago

Gold demand hits highest level in more than two years

Gold demand hits highest level in more than two years

Rising inflation and the post-pandemic economic uncertainty has sent demand for gold to a two year high, according to the World Gold Council.

The organisation’s latest report shows the appetite for the metal  reached 1,147 tonnes in the last three months of 2021, its highest level since the second quarter of 2019 and an increase of almost 50 percent year-on-year.

Gold bar and coin demand rose 31 percent to an eight-year high of 1,180 tonnes, while the  jewellery sector rebounded to match 2019’s pre-pandemic total of 2,124 tonnes.

For the twelfth consecutive year, central banks were net purchasers of gold, adding 463 tonnes to their holdings — 82 percent higher than 2020. 

Central banks from both emerging and developed markets added to their gold reserves, lifting the global total to a near 30-year high.

Louise Street, a senior analyst at the World Gold Council, said: “On the investment side, the tug of war between persistent inflation and rising rates created a mixed picture for demand. Increasing rates fuelled a risk-on appetite among some investors, reflected in ETF (exchange-traded fund) outflows. 

“On the other hand, a search for safe haven assets led to a rise in gold bar and coin purchases, buoyed by central bank buying.

“Declines in ETFs were offset by demand growth in other sectors. Jewellery reached its highest level in nearly a decade as key markets like China and India regained economic vibrancy.”

Street added that the World Gold Council is expecting demand to fluctuate in 2022, with how central banks deal with persistent high levels of inflation a key factor affecting the sector.

Likewise, the jewellery market’s strength could be hampered if new COVID variants once again restrict consumer access.

 


Alturki migrating recently-bought US drilling firm to Dhahran

Alturki migrating recently-bought US drilling firm to Dhahran
Updated 28 January 2022

Alturki migrating recently-bought US drilling firm to Dhahran

Alturki migrating recently-bought US drilling firm to Dhahran

DAMMAM: Investment firm Alturki Holding is shifting the base of a US drilling firm it recently acquired to Dhahran, according to the head of the company.

Speaking to Arab News, Alturki’s CEO Rami Alturki said the move was related to Newsco International Energy Services, which it snapped up in October 2021 for an undisclosed amount. 

The comments came on the sideline of the Saudi Aramco hosted In-Kingdom Total Value Add forum, held in Dhahran.

Referring to Newsco, Alturki said: “We are in the process of migrating the company to be based here in Dhahran.” 

Alturki also commented on another of his firm’s subsidiaries, Sawafi Borets, which was awarded a contract to create a $50 million facility in King Salman Energy Park, or SPARK, to assemble electrical submersible pumps.

“We're also very involved on the construction side, building facilities for Aramco across the Kingdom,” he added. 


Iraqi ‘super app’ Baly raises $10.5m in funding round

Iraqi ‘super app’ Baly raises $10.5m in funding round
Updated 40 min 12 sec ago

Iraqi ‘super app’ Baly raises $10.5m in funding round

Iraqi ‘super app’ Baly raises $10.5m in funding round

RIYADH: Iraq’s first super app Baly raised an historic $10.5 million in its latest funding round — the most ever for a tech startup in the country. 

Baly launched ride-hailing as its first service in Baghdad last month, and already boasts thousands of rides each day, according to a press release. 

Additional services, like food and grocery delivery, will go live in the next few weeks, and Baly will expand to cover more cities in the country.

The startup will be able to use the new funds to support its scaling efforts in operations and market growth, the company said.

Baly Managing Director Matteo Mantovani said: “Iraq is home to 40 million people, with over 90 percent smartphone penetration amongst those aged 17-40. 

“With a young, urbanized population, it is the perfect place to revolutionize the economy through digital services.

Arnd Lodowicks, chief financial officer of investor Rocket Internet, said: “Baly is for us a world-class team in an extremely exciting and promising market. We are looking forward to supporting  the company on its mission to become the leading super app of Iraq.”

Venture capital funding in Iraq reached record highs in 2021, despite the political and socio-economic challenges in the region, according to Baly.

It crossed the $5 million mark over five deals in 2021, recording a 170 percent year-on-year jump in VC funding.

Kingsway Capital, MSA Capital, Global Founders Capital, Vostok Ventures, Majid Al Futtaim, and March Holding all participated in the funding round for Baly.


HP wins fraud case against UK tech tycoon Mike Lynch

HP wins fraud case against UK tech tycoon Mike Lynch
Updated 28 January 2022

HP wins fraud case against UK tech tycoon Mike Lynch

HP wins fraud case against UK tech tycoon Mike Lynch

LONDON: Hewlett-Packard won the majority of its civil case against British tech tycoon Mike Lynch over its acquisition of Autonomy in 2011, a London judge said on Friday, though damages will be considerably less than the $5 billion claimed.
The court’s decision comes on the same day as Britain has to decide whether or not to extradite Lynch to the United States after almost a decade of bitter wrangling over who was to blame for the failure of Hewlett-Packard’s $11 billion takeover of Lynch’s Autonomy.
HP had sued Lynch, arguing that he had fraudulently inflated the value of Autonomy before he sold it to the US tech giant. Lynch had argued that HP mismanaged the acquisition.
High Court Justice Robert Hildyard said HP had substantially succeeded in their case but the damages would be less than they were demanding.
Lynch faces separate criminal charges in the US, including wire fraud and securities fraud.
A year after acquiring Autonomy, HP threw out the architect of the deal which was supposed to help transform the computer and printer maker, one of Silicon Valley’s original companies, into a more profitable group centered on business software and services.
It wrote down the value of Autonomy by $8.8 billion and sought damages of around $5 billion from Lynch and his colleague Sushovan Hussain, alleging they inflated the value of Autonomy before selling it. Hussain was convicted in the United States in 2019.
Lynch has denied all the allegations.
Lynch is due to hear on Friday whether Britain’s interior minister Priti Patel has approved the extradition request to the United States.
A court has given Patel until midnight on Friday to make a decision, although Lynch could appeal any ruling that goes against him. The US charges carry a maximum term of 20 years imprisonment.
Lynch is one of Britain’s leading tech bosses. He founded Autonomy which was capable of searching and organizing unstructured information, such as telephone conversations.
The 56-year-old’s doctoral thesis remains one of the most consulted at Cambridge University and his success, including the around $800 million he made from his stake in Autonomy, elevated his position in Britain, giving him a place on government advisory boards.
Lynch was also central to the creation of DarkTrace , a cybersecurity firm that listed on the stock market last year. Lynch and his wife Angela Bacares own nearly 16 percent of DarkTrace, according to Refinitiv


Global stocks head for worst January since 2008 financial crisis

Global stocks head for worst January since 2008 financial crisis
Updated 28 January 2022

Global stocks head for worst January since 2008 financial crisis

Global stocks head for worst January since 2008 financial crisis
  • MSCI’s 50-country main world index is now down over 8.1 percent for the month

LONDON: European stocks fell heavily again on Friday as worries about a sudden halt to central bank stimulus and rising tensions between Western powers and Moscow drove one of the worst ever starts to a year for world stock markets.
Strong earnings from Apple provided some encouragement for battered tech and US markets, but traders were struggling to draw a line under a global selloff that has now firmly taken root.
The pan-European STOXX 600 tumbled 1.5 percent in morning trading, on course for its fourth straight weekly drop, while US futures were pointing to more crimson screens on Wall Street later too..
MSCI’s 50-country main world index is now down over 8.1 percent for the month, which will be its worst January since the 2008 global financial crisis year.
The dollar, meanwhile, is on track for its best week in seven months on bets that US interest rates could now go up as many as five times this year.
“With the Federal Reserve sounding a lot more hawkish, it has shaken the markets,” said Jeremy Gatto, a multi-asset portfolio manager at Unigestion in Switzerland.
“Markets can live with rate hikes, but the main question remains around the balance sheet,” he added. Markets have been driven up by all the stimulus pumped in during the COVID-19 crisis, “so if it starts reducing liquidity, that changes the game.”
The Fed indicated this week that it is likely to raise rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.
The prospect of faster or larger US interest rate hikes, and possible stimulus withdrawal, lifted the dollar to a 20-month high of $1.1119 per euro and to 115.50 yen — close to a high of year so far of 116.35 yen.
In the big government bond markets that drive global borrowing costs, benchmark 10-year US Treasury yields rose to 1.84 percent compared with their US close of 1.80 percent on Thursday. The two-year yield, which is even more sensitive to rate hike expectations, touched 1.22 percent, having started the year at roughly 0.75 percent.
European bond yields also rose further. Germany’s 10-year yield, the benchmark for the euro zone, was up over half a bp to -0.02 percent although still not quite able to break through the zero threshold.
Focus was also on Italy, where bond yields were back up around 4 bps after a late afternoon rally on Thursday while its parliament struggled to elect a new president.

OIL PRESSURE
Oil prices remained strong, set for their sixth weekly gain, amid concerns of tight supplies as major producers continue their policy of limited output increases amid rising fuel demand.
Brent crude futures climbed 57 cents, or 0.6 percent, to $89.91 a barrel, just shy of the $91.04 hit earlier in the week that was the highest level since October 2014.
A sixth week of gains will also mark the longest weekly winning streak for Brent since October last year, when Brent prices climbed for seven weeks while US WTI gained for nine.
This year, prices have risen about 15 percent amid geopolitical tensions between Russia, the world’s second-largest oil producer and a key natural gas provider to Europe, and the West over Ukraine, as well as threats to the United Arab Emirates from Yemen’s Houthi movement that have raised concerns about energy supply.
“Where Brent crosses the $90 level, we see some selling from a sense of accomplishment, but investors start buying again when the prices fall a little as they remain cautious about possible supply disruptions due to rising geopolitical tensions,” said Tatsufumi Okoshi, senior economist at Nomura Securities.
“The market expects supply will stay tight as the OPEC+ is seen to keep the existing policy of gradual increase in production,” he said.
The market is focusing on a Feb. 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+. It is likely to stick with a planned rise in its oil output target for March, several sources in the group told Reuters.