Investment bank EFG Hermes is currently "very active in securing mandates" in Saudi Arabia as it forecasts an increase in merger and acquisitions activity in the kingdom.

Speaking at a media roundtable event held at its Dubai office, co-head of investment banking Mohammed Fahmi said that it was seeking to win both potential initial public offering (IPO) advisory deals as Saudi Arabia's market opens up to foreign investors, and more M&A work which he believes will be driven by a mix of market consolidation, foreign buyers of local Saudi firms and the private equity sector.

Fahmi said that it was not competing for the big-ticket, government-led IPOs due to their size and the time it takes for them to come to market.

"We're very much chasing a few private sector Saudi IPOs that we think are very good stories that can come to market," he said.

Fahmi said that he had hoped that 2018 "would be a sort-of breakthrough year" for equity capital markets (ECM) deals in Saudi Arabia, but IPOs have been few and far between.

According to EY's MENA IPO Eye Q2 2018 report, there were eight new listings on Saudi Arabia's main market in the first half of this year, all of which were real estate investment trusts (REITs). Since then, however, Leejam Sports Company has achieved a successful listing, raising capital for an expansion of its Fitness Time chain of gyms.

And although the IPO the world was waiting for - state-owned oil company Saudi Aramco - has now been pushed back until 2021, according to a recent interview given by Crown Prince Mohammed Bin Salman to Bloomberg, this frees up capacity in the market, Fahmi indicated.

Aramco shadow lifted

"I think a lot of companies that were waiting for Aramco are now going into second gear and looking to expedite their IPO plans," he said.

He argued that some of the issues facing firms potentially seeking listings on public markets in Saudi Arabia have included changes within the Capital Markets Authority (CMA) and to market legislation.

"There have been fantastic, positive change within the CMA in Saudi, but in some instances things take a bit longer than expected. And some companies want to try new things. A lot of companes are considering dual listings, a lot of companies are considering doing GDR (global depository receipts, allowing for securities to be sold in other markets) components, a lot of banks and companies are working together to see how you can bring on board an international-style offering and have it hand-in-hand with a Saudi IPO."

Away from public markets, Fahmi argued that there were opportunities in the M&A market in the kingdom, where there are "quite sizeable" mid-market firms offering attractive earnings for potential acquirers.

"These are companies with earnings of $20-$25 million that take a bit of time but are actually transactable," he said, citing both the healthcare sector and the food and beverage sector (both in production and retail businesses) as markets offering potential for deals.

Fahmi added: “There's a lot of M&A happening in Saudi. A lot of it is not that big, a lot of it is happening under the radar.

“You will see more M&A next year,” he said, adding that this will be driven by a mix of Saudi-owned private companies looking to grow market share, international firms looking to build a presence as the market opens for foreign investment, and a more active role being played by private equity firms in the kingdom.

"We're seeing a lot of the larger private equity groups showing more interest in Saudi," Fahmi argued. "A lot of the international groups that maybe didn't focus much on Saudi before are now focusing on Saudi, are now actively looking to invest in Saudi, deploying more people on the ground to find opportunities, which I find very interesting. These are relatively sizeable pockets of liquidity that could affect the private market in Saudi once things are more transactable."

Although some local private equity managers have expressed difficulty in raising funds in the wake of the collapse of the region's biggest and best-known private equity firm, Abraaj Group, private equity fundraising globally remains healthy, albeit below the record levels set last year.

Data published this month by research firm Preqin found that private equity funds raised $121 billion of new capital in the third quarter of 2018 - 15 percent lower than the corresponding quarter last year, but 26 percent higher than the $96 billion raised in the second quarter of 2018.

(Reporting by Michael Fahy; Editing by Shane McGinley)


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