Arab News, Thu, Mar 28, 2024 | Ramadan 18, 1445
Saudi Arabia’s private equity market sees $4bn in transactions
Saudi Arabia:
Saudi Arabia’s private equity sector has been on an upswing for the past five
years, culminating in transactions worth $4 billion in 2023, according to
MAGNiTT.
The venture data platform, alongside Saudi Venture
Capital Co., released report highlighting a significant surge in private equity
activity within the Kingdom.
From 2020 onward, the sector has shown impressive
growth, achieving a 3.7 multiple in 2021 compared to the year before and an
exponential leap to 5.9 times in 2022 compared to the previous year.
Private equity investments involve capital
infusion by investors or firms into private companies, not listed on the stock
markets. Managed by private equity firms, these investments aim to enhance the
company’s value through strategic improvements and operational efficiencies,
with the intent to sell the company at a profit later.
This sector is characterized by long-term
investments, active management, and higher risk-reward profiles.
Private equity typically invests in more mature
companies than venture capital, which focuses on early-stage companies with high
growth potential, often in the tech sector, using equity financing.
Meanwhile, the report highlighted a noticeable
shift in the nature of private equity deals with a substantial rise in buyout
transactions, which have increased by 20 percentage points in their share of
total negotiations from 2020 to 2023, the report stated.
Buyout transactions refer to the process where a
private equity firm acquires a majority stake in a company, often taking it
private to strategically restructure and improve its financial health.
Concurrently, growth transactions, which focus on
investing capital into established companies seeking expansion or scaling
opportunities, also saw an uptick of 2 percentage points during the same period.
Dominating the investment scene, buyout deals
accounted for an average of 80 percent of the total capital invested,
highlighting a strategic shift and burgeoning prominence in the Kingdom’s
investment landscape.
The report further shed light on the transactional
diversity and industry focus within the private equity sector over the last five
years.
The food and beverages sector emerged as one of
the most active areas for private equity transactions.
However, the manufacturing sector took the lead in
investment volume, securing 46 percent of the total capital deployed from 2019
to 2023.