UK-Saudi M&A deals on the rise as ties strengthen

Merger and acquisition activity between Saudi Arabia and Britain has soared since August when travel restrictions eased, as a new direct investment programme between the two countries offers a further boost to Saudi-UK relations. Fikry Younis, the Riyadh-based partner of Lumina Capital Advisers, said activity in the Saudi-UK corridor has risen 50 per cent since the summer on the back of eased travel regulations, Brexit and Saudi Arabia’s implementation of Vision 2030. “Scaling in Saudi Arabia is the main theme that we're seeing right now — whether it's Saudi investors looking to bring in UK expertise and capabilities or UK investors looking to find new or larger markets for their products,” said Mr Younis. “When we're talking about acquisitions [it’s due to] the prevalence of expertise and knowledge in the UK and the need for that expertise and knowledge in Saudi Arabia,” he said. The increased deals activity between the two nations comes after the signing of a pact to promote direct investment last month, following a meeting between representatives from Saudi Arabia’s Ministry of Investment and the UK’s Department for International Trade on the sidelines of the Future Investment Initiative conference in Riyadh. However, other factors at play in the ramp-up include the “prevailing economic conditions” challenging Britain’s economy after its exit from the EU and as the Covid-19 pandemic began affecting supply chains. “In contrast, in Saudi Arabia, things are picking up. We have Vision 2030, which was announced in 2016, and now we're starting to see some of the fruits of that and we're building up the momentum for the next five years. So, this is the intersection between Saudi Arabia in the UK — the prevailing economic conditions and the need for expertise and capabilities,” Mr Younis said. Britain’s economic growth slowed sharply in the third quarter, with gross domestic product growing only 1.3 per cent, compared to 5.5 per cent in the previous three months, in a further sign the economic recovery is faltering amid supply chain challenges . Meanwhile, Saudi Arabia’s economy grew 6.8 per cent in the third quarter, its fastest pace since 2012, the kingdom’s General Authority for Statistics said, with the country creating 555,000 new jobs in the last four years as it looks to develop $1 trillion worth of new projects to meet its Vision 2030 objective of diversifying the economy away from oil. “The targets for the vision in Saudi Arabia are very ambitious, and for that, there is a need for expertise and capabilities that today does not exist in the kingdom,” said Mr Younis. With the growth in M&A deals so significant, Lumina has set up an office in Riyadh to handle the work — complementing its existing bases in London and Dubai — with Mr Younis, who was a former adviser at the Saudi Ministry of Investment and who held executive roles at Alkhabeer Capital in Jeddah and Shuaa Capital, taking the helm. With more than 600 British companies in Saudi Arabia, the kingdom aims to benefit from British expertise in education, finance, supply chains in the health sector, advanced technologies and human resource development, said Saudi Minister of Investment Khalid Al Falih, who said in August that the country aims to double its investments in the UK's healthcare sector. Mr Younis said Lumina was already seeing increased activity in health care as well as social infrastructure, education, logistics and technology, “whether it's healthtech, edtech or FinTech". As Saudi Arabia transforms and strives to attract regional headquarters of multinationals, it will need to improve the quality of life it offers, Mr Younis said, which is why privatising its healthcare system and raising the standard of its schools are key. “With the changing scene in Saudi Arabia and the fact that you have these large and very old and reputable institutions in the UK, I think we have a great match,” he said. Examples of this are already evident with King’s College Hospital set to open a 150-bed facility in Jeddah next year, offering residents more than 40 medical and surgical specialities that tap into the 178-year-old legacy of the UK brand. In education, King’s College Riyadh — an offshoot of the 140-yer-old King’s College, Taunton in Dorset — became the first British boarding school to set up in Saudi Arabia when it welcomed its first pupils in August. Meanwhile, Newcastle United's long-awaited purchase by a Saudi-backed consortium , including the kingdom's $430 billion sovereign wealth fund PIF (Public Investment Fund), is another example of “the momentum to increase the traffic along the Saudi-UK corridor”, said Mr Younis. Paul Arnold, managing director of Sovereign Saudi Arabia, which provides company formation and management advice as well as tax guidance for firms looking to set up in the kingdom, has also noticed a boost in demand from UK companies. “Since the summer when Saudi Arabia announced that people can travel, businesses that were hesitating to make a decision and move have now pushed the button,” said Mr Arnold. “Things are moving again but we're seeing more investment into Saudi Arabia than Saudi investment into the UK.” The main sectors attracting UK businesses are energy and water, IT, hospitality and entertainment, Mr Arnold said, as companies including small SMEs and large multinationals look to set up a regional base in Riyadh. The world's top exporter is giving foreign firms until the end of 2023 to set up headquarters or a regional base in the country or risk losing government contracts. With 44 international companies already licensed by Saudi Arabia, Mr Arnold said he expects to see a surge in demand from the UK as more companies look to establish a base in city as the deadline nears. “We’re up about 30 per cent on where we were this time last year,” he said referring to the work the company carries out for UK companies. “With all of the relaxed regulations and the way the kingdom is opening itself up, if you look at the next decade, the way forward is Saudi Arabia,” he said, and added that 40 per cent of the enquiries Sovereign currently receives are from people who have had “bad advice” in the past and are now looking “to rework their market entry strategy”. One key area of excitement centres on the kingdom’s tourism, leisure and entertainment sectors. Tourism is expected to account for more than 10 per cent of Saudi Arabia’s gross domestic product by 2030 — up from 3 per cent currently — and provide one million jobs with projects such as Neom — a $500bn futuristic city comprising a nature reserve, coral reefs and heritage sites on islands along the Red Sea — and a mega-entertainment and sports project called Qiddiya in the capital. Last month Saudi Arabia’s Tourism Development Fund and London hospitality company Ennismore established a $400m fund to help bring Ennismore’s lifestyle brands to 12 destinations in the kingdom. Meanwhile, Saudi Arabia’s bid to become a golf destination is also attracting players from the UK, with Mr Younis also expecting the country's restaurant scene to become more sophisticated to accommodate visitors, as the kingdom plans invest more than $1tn in the tourism sector over the next 10 years. “That will increase the demand for more quality food products from the UK, whether it's Scotch beef or Welsh lamb,” said Mr Younis, whose company charges a fixed fee to help companies secure business and a success fee of up to 5 per cent of the transaction size. With the size of the deals Lumina handles sitting in the “sweet spot of between the $20 and $100m”, Mr Younis said there are also opportunities in food security following the Covid-19 crisis and in green technology. Green projects were a key focus of the recent Saudi-UK investment pact, with Mr Al Falih highlighting green technology and associated infrastructure through public-private partnerships as a way to help Saudi Arabia reach carbon neutrality. “We have to deal with carbon as part of our economy, as part of our ecosystem for decades to come,” he said at the Future Investment Initiative conference. Next year, Mr Younis expects even more activity as the world adapts to a post-Covid world after a recent networking event in Dubai highlighted the interest in the country. “We were worried that people might not show up to our event in Dubai but we had a full room and people just kept asking questions,” he said. Mr Arnold is also expecting 2022 to be busy despite the shadow of Covid-19 still hanging heavily as the world grapples with the new Omicron strain. “Even during Covid, we were still writing business in Saudi Arabia for international companies, ” he said. “You don't necessarily need to be physically in Saudi Arabia to set your company up — that’s what we’re there for.”

UK-Saudi M&A deals on the rise as ties strengthen

Brexit, Covid and Vision 2030 accelerating transactions between the two countries