Saudi Arabia’s private equity market sees $4bn in transactions

RIYADH: 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.