SAUDI ARABIA Trends and Developments Contributed by: Ghada Al Abdulwahab, Talal AlOtaibi, Khalid Alsheddi, Mariana El Maoula and Saja Bin Atef, SuhailPartners LLP
Along with the announced proposed new regulations and amendments to other regulatory frameworks, such as the Companies Rules in Special Economic Zones and the amendments to the Offering of Secu - rities and Continuing Obligations rules, which allows subsidiaries owned 100% by a listed company to be listed through a direct registration rather than an offer - ing, the firm anticipates increased future activity in mergers and acquisitions, driven by the diversity of available legal structures and exit mechanisms. Notable trend One notable trend has been the increase in acquisi - tions by mid-sized and large companies of smaller businesses that engage in supporting or complemen - tary activities related to the buyer’s core operations across multiple industry verticals. Many of these com - panies are actively seeking to acquire smaller, spe - cialised businesses that are either profitable or show strong potential for future growth. This strategy offers local companies a cost-effective means to expand into new areas to support their core business without building capabilities from scratch, reducing time-to- market by an estimated 40–60% compared to organic development initiatives. For foreign companies, acquiring an existing busi - ness with a successful track record and potential growth in the Saudi market can be more beneficial than establishing a new operation, particularly in sec - tors requiring local expertise and know-how, such as logistics, specialised distribution networks and gov - ernment contracting. On the other hand, for sellers, such arrangements present opportunities for new revenue streams and potential expansion, as well as great exit opportunities, which in turn can encourage more entrepreneurship in the region and create a more dynamic start-up ecosystem. This acquisition strategy has been particularly com - mon in the healthcare sector, where hospital groups and medical service providers are acquiring special - ised clinics and diagnostic centres to create compre - hensive care networks. The trend reflects a broader shift towards strategic consolidation aimed at cre - ating integrated service offerings while capitalising on operational synergies and economies of scale. Industry analysts predict this pattern will accelerate
through 2026 as competition for market share inten - sifies across priority sectors identified in Vision 2030 implementation plans. Legal difficulties when acquiring small businesses While acquiring a small business can mean a relatively shorter transaction timeline due to the business size, it also presents unique challenges, particularly on the legal front, with legal due diligence being a critical area of focus for potential acquirers. Smaller companies often prioritise day-to-day operations and profitabil - ity, which may lead to neglect of legal and compli - ance matters, creating significant risk exposure that may not be immediately apparent. Common issues encountered during legal due diligence include the following. Weak internal governance Problems can include a lack of clear records of deci - sions, the absence of general meetings, failure to file required reports with regulators like the Ministry of Commerce, issues with verification of ownership (especially with unregistered ownership) and incon - sistencies between ownership records and actual capital contributions. Many small businesses in Sau - di Arabia operate with informal arrangements among shareholders that are not properly documented, cre - ating potential disputes post-acquisition. Corporate record books are often incomplete or non-existent, making it difficult to establish a clear chain of authority for past decisions and transactions. Licensing and labour law compliance issues Non-compliance with licensing conditions or labour regulations, such as failing to register employment contracts with Qiwa platform or meeting Saudisation requirements, can result in fines or licence revoca - tion, and can create significant operational disrup - tions. Small businesses frequently operate with out - dated licences or permits that do not fully cover their current business activities. Moreover, many struggle to maintain proper documentation for foreign work - ers, including valid work permits and residency visas. These compliance gaps can create substantial finan - cial liabilities for acquirers, who may become respon - sible for historical violations.
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