Introduction to Risk Reduction in Saudi M&A Transactions

by | Apr 4, 2019 | Foreign Investments | 0 comments

April 4, 2019

Ever since Saudi Arabia joined the World Trade Organization, it is one of the world’s foremost emerging markets. Saudi M&A laws are improving transparency and efficiency. These laws will help companies conduct M&A activities in the KSA without barriers and difficulties. These improvements in Saudi M&A laws will help to stimulate the country’s economy as well. The M&A transactions are rapidly growing in the country’s stock market.

The Saudi M&A Regulations

When the controlling stake in the target has been acquired, the Saudi M&A Regulation applies. According to the Saudi Capital Market Authority, “control” is defined as “the ability to influence the actions/decisions of another person directly, or indirectly

(a). When holding 30% or more voting rights in a company

(b). When having the rights to appoint 30% or more of the members of the governing body.”

A “controller” is constructed accordingly, which concludes that Saudi M&A Regulation will only be applied to a stock purchase of 30% and more of a company’s share. If a company acquires less than 30%, the acquisition needs not to comply with the regulation.

The Saudi M&A Regulation also requires a proposed acquisition to be publically announced when

• The company is considering a potential takeover.

• A firm intention to make an offer is notified to the board.

• Immediately upon acquisition of shares.

Reducing Risk in M&A Transactions

With the aggressive competition in the marketplace, mostly the deals are closed without parties taking the simple precautions. There are three categories which define M&A risk:

(1). Financial

(2). Operational

(3). Legal

These are different concerns which can be directly contradictory when viewed by purchasers and sellers.

Sellers want to avoid overpaying, while buyers look to maximize returns. Sellers want to limit business disruption, while buyers look to limit post-closing liability. The most effective remedy is due diligence. Getting legal advice from a local attorney is what you should consider, to avoid any unfair settings.

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