New rules will pave way for more M&A deals in Saudi: PwC

Saudi Arabia's move to update some existing laws and introducing new ones such as bankruptcy regulations make it easier for struggling companies to restructure debt and attract new investors, PwC said in a new report.

Education and healthcare sectors will continue to provide merger and acquisition (M&A) opportunities for long-term investors, as the market segments remain largely untapped, the consultancy said in its “TransAct ME - Deals trends and outlook for the Middle East” report.

"Vision 2030 plan is creating much excitement in the region, with the reforms gathering pace this year.  The Kingdom is embarking on an intensive drive to overhaul and diversify its economy as it seeks to create an investor-friendly climate for privatization, including a listing for Saudi Aramco," the report noted.

Additionally, the Kingdom is also updating some existing laws and introducing new ones such as bankruptcy regulations, which will make it easier for struggling companies to restructure debt and attract new investors.

Nomu – a new market for small cap firms launched in 2017 – was intended to tap unfulfilled demand and triggered a record number of listings in the country.

"New rules allowing foreigners to trade shares directly may deepen this market's liquidity in the years ahead," PwC noted.

Opportunities are also opening up in the hospitality and leisure sectors as the Kingdom seeks to become a destination for religious tourism.

And as Vision 2030 advances with the modernization of society – for example, by granting women the right to drive (3 million women drivers are estimated to enter the market by 2020) – investors should see new opportunities arising in sectors such as insurance and automotive and indirectly in leisure and retail, the report said.

Citing the proposed merger of $5 billion Saudi British Bank (SABB) and Alawwal Bank in Saudi Arabia, PwC said the next few years are likely to see further consolidation opportunities in the various financial services subsectors.

"Given the number of players in each of the financial services subsectors though, consolidation opportunities will continue to be a feature in the region."

Looking ahead to late 2018/early 2019, PwC said deal flow should improve as restrictions on foreign ownership are eased further, and regional governments advance with their transformation agendas.

"The learning curve around the transformation and privatization agenda in Saudi Arabia will continue. Across the region the regulatory framework for M&A is expected to be more supportive and should, therefore, contribute to an improvement in deal activity," it added.