Advisory firm KPMG expects to close 3-6 M&A deals in Saudi

KPMG Al Fozan & Partners, an audit, tax and advisory services provider in Saudi Arabia, is expecting to close between three and six merger and acquisition (M&A) deals in the Kingdom in 2018, Abdullah Al-Fozan, chairman of KPMG MESA and KPMG Saudi Arabia told Argaam in an exclusive interview.

KPMG, which is advising the Saudi government in several aspects of its reforms, is also achieving record growth in the Kingdom this year due to increasing demand for its services by the public and private sector.

“We have successfully closed a deal with a total value exceeding SAR 1 billion and we have a few ones in the pipeline which are about to close. We expect to close at least three to six transactions within 2018 mainly in fintech, healthcare, automotive, and transportation,” he said.

Below are the excerpts from the interview:

Q: What is the biggest challenge for the audit companies in Saudi Arabia? How are you overcoming it?

A: Although the audit sector is one of the most structured and formed sectors, it still faces some challenges: lack of qualified human resources; intensive competition for our Saudis employees working in the professional companies as they receive better job offers from other industries and the Saudi employees quickly leaving establishments after gaining experience in the professional companies. In addition, there are challenges related to misrepresentation, manipulation and fraud made by some weak people, whether those working with certified auditors or some employers.

Q: Can you share the expected growth rate you forecast for all your business segments in 2018 over 2017? Can you share the reason for this growth?

A: KPMG in the Middle East and South Asia (MESA) reported 12.7 percent growth in aggregated revenues of member firms across the MESA region for the fiscal year ended Sept. 30, 2017. Revenues across all core functions grew in double digits with audit revenues increasing by 13 percent, tax by 19.1 percent and advisory by 10.6 percent. Within advisory, deal advisory and risk consulting revenues increased by more than 20 percent last year.

For KPMG in Saudi Arabia, this year has been an exciting one as we continued to work alongside the major transformation programs in Saudi, assisting numerous private sector clients for the introduction of the value-added tax (VAT) and the implementation of International Financial Reporting Standards as well as digitalization programs for leading organizations in the Kingdom.

Throughout 2018, we will continue to aggressively invest in areas such as strategy and operational consulting, digital and customer experience, oil & gas and chemical sector capabilities, taxation with a specific focus on VAT as well senior recruitments to enhance capabilities in the new International Financial Reporting Standards (IFRS), technology transformation, risk, cyber security, financial services sector capabilities and data and analytics among a broader set of regional growth initiatives.

Q:  What are some of the fundamental changes required to encourage foreign international investors to Saudi Arabia?

A: The Saudi Government laid out plans to modernize, diversify and globalize its economy under its Vision 2030 plan, implementing a series of wide-ranging reforms designed to open the Kingdom to foreign investors, reduce its reliance on oil exports and bring it in line with the world’s most powerful emerging economies. By loosening restrictions on outside investors and introducing new regulations, Saudi Arabia’s overarching goal under the program is to rank itself among the top 15 economies in the world by 2030.

Foreigners can now directly own shares in public equity companies, while the ease of owning shares in private companies is increasing. Furthermore, the recent establishment of an official anti-corruption committee has improved fiscal security within the country, providing a more transparent business environment for investors.

Q: Can you tell us about the progress of the privatization of some of the Kingdom's key sectors, in line with NTP 2020, such as the healthcare sector?

A: The privatization of government hospitals is progressing well as the Health Ministry has taken steps to establish a holding company and five health companies covering all of the Kingdom's regions.

There is a definite move towards privatization with a stated objective in the NTP of increasing private healthcare expenditure from the current 25 percent to 35 percent of total spending by 2020. 

The government views healthcare as the sector with the best potential for privatization, and the plans will allow foreign investors to own companies fully in the health sector, but the date for implementation remains to be announced. Currently, foreign entities can only own hospitals with a minimum bed requirement and cannot own any other healthcare institutions. There is a raft of investment opportunities ranging from diabetic care through to medical cities and primary healthcare centers.

Many of these initiatives will ultimately be procured through a PPP mechanism, in which foreign investors and service providers are likely to play pivotal roles.

Q: Do you see more M&A taking place in Saudi Arabia this year?  

A: There are more or less two types of transactions that are happening and are expected to happen in the market: M&A activity driven by a consolidation anticipated to happen in segments of the private sector most impacted by the economic transformation the Kingdom and M&A activity driven by increased investors’ appetite to participate in sectors expected to become the engine of the kingdom’s future economy.

Q: How many M&A transactions are you involved with and do you expect them to close this year?

A: We have successfully closed a deal with a total value exceeding SAR 1 billion and we have a few ones in the pipeline which are about to close. Our deals are spread between different cities in KSA with a focus in Riyadh and Jeddah.

Q. Saudi is working on equal gender pay legislation. How is KPMG already dealing with the issue?

A: At KPMG Saudi Arabia we are increasingly coming to recognize the strong business case for improving the level of gender parity and diversity. Our female employee gets paid the same as their male counterparts without discrimination when holding the same positions/job title. At KPMG every individual counts, so it follows that we believe we can make a difference for all women.