In recent years, the Kingdom of Saudi Arabia has emerged as a bustling hub for business and investment. The country’s Vision 2030 has started a new wave of economic diversification and growth opening its door to the world. One significant aspect of this transformation is the increasing trend of company acquisitions in Saudi Arabia. Simply put, company acquisition is a business transaction in which a company acquires another company or its assets and gains control over it.
The core process of company acquisitions is similar in all countries and Saudi Arabia is no exception. However, the current rules and legal system in KSA must be taken into consideration during the company acquisition process. Entering the Saudi Arabian market via acquisition requires careful planning, adherence to regulatory requirements, and a comprehensive understanding of the local business landscape. If you are planning to start a business setup in Saudi Arabia through a company acquisition, read on to understand the process in detail.
What is a share purchase?
In Saudi Arabia, the most common corporate entities involved in company acquisition are the Limited Liability Companies and Joint Stock Companies. Also, companies in this region are commonly acquired through share purchases. The following are the main features of a share purchase:
· The company’s business can continue in terms of existing supply and sale contracts
· No need to transfer the employees’ sponsorships to the new entity which helps in saving time and money
· Decrease the risk of VAT assessment on the transfer transaction.
Understanding the process of company acquisition
The process of company acquisitions is quite complicated as it has legal implications. The following are the typical steps involved in the process:
· Market research and target identification
This is the first and foremost step in any company acquisition. Do market research and jot down the objectives and criteria for acquisition including the industry you are looking for and the financial health of the target company.
· Nondisclosure/Confidentiality agreement
Before finalizing the decision of company acquisition, both parties must ideally agree on and execute a nondisclosure or confidentiality agreement to safeguard sensitive information. It is a legally binding document that requires the recipient of any information deemed confidential to abide by it for a specific period as mentioned in the terms.
· Letter of intent
Once you’ve identified a suitable target, the next step is to draft a Letter of Intent (LOI). The LOI outlines the key terms and conditions of the acquisition, including the purchase price, payment terms, and any other relevant details. It serves as the basis for negotiations between the buyer and the seller.
· Legal due diligence
The acquiring entity will request the target company to submit a legal due diligence list that includes documents like power of attorney, employment contracts, and financial transactions to identify potential legal risks.
· Share/asset purchase agreement
Once the acquiring company is satisfied with the legal due diligence report, both parties will sign a share purchase agreement. It will define the terms of the transaction, specify each party’s rights and obligations, and ensure contractual protection against undisclosed risks.
· Closing an acquisition transaction
After receiving regulatory approvals, the transaction can be completed. This involves transferring ownership, executing the payment, and integrating the acquired company into your organization. Integration is a critical phase that requires careful planning to ensure a smooth transition and maximize the value of the acquisition.
Seek expert advice to ensure compliance
Have plans to acquire a company in Saudi Arabia? Company acquisition is a complicated process that has legal and financial risks. Additionally, navigating through the legal system in Saudi Arabia is also a time-consuming and exhaustive task. So, it won’t be wise to carry out it all by yourself. A trustworthy business consultancy can guide you through the entire process and save you from committing costly mistakes. With over five years of experience in Saudi Arabia. Business Link has helped several entrepreneurs to turn their dreams into reality. Our team of consultants is adept at company formation in Saudi. We provide end-to-end support and ensure legal compliance without fail. You can visit our business center in Riyadh, Saudi Arabia to execute your business plans right away.
