Private Equity in Saudi Arabia
If you ever want to get a job in private equity in Saudi Arabia, how should you approach it? How is the market for private equity in Saudi Arabia? Would you get better opportunities in private equity elsewhere if you live in Saudi Arabia?
The privatization drive by Saudi Arabia has attracted many Private Equity firms, including KKR. KKR, along with other regional companies, are looking for opportunities from Saudi Arabia’s government plan to sell around $200 billion in assets. Additionally, Investment Banks like Citigroup have already obtained its Investment Banking license, and other top Investment banks like Goldman Sachs, Credit Suisse, and JPMorgan are looking for a full banking license in Saudi Arabia.
We will discuss all of these and more in this article. Let’s have a look at the sequence of the article.
In this article, we will talk about the following –
- Private Equity in Saudi Arabia – Market Overview
- Private Equity in Saudi Arabia – Services Offered
- Top Private Equity Firms in Saudi Arabia
- Private Equity in Saudi Arabia – Recruitment Process
- Private Equity in Saudi Arabia – Culture
- Private Equity in Saudi Arabia – Salaries
- Private Equity in Saudi Arabia – Exit Opportunities
Private Equity in Saudi Arabia – Market Overview
There are three things that impede the growth of the PE market in Saudi Arabia. These issues are inherent within the system and pretty tough to come out of. That’s why the PE market in Saudi Arabia is still at the early stage of development.
The first big issue of the private equity market in Saudi Arabia is the influence of family-owned businesses. Around 95% of the businesses are family-based, which is not ready to give in their control to the outside forces. As a result, it’s becoming significantly tougher for private equity firms in Saudi Arabia to tap into this particular market.
The second major issue is the lack of any sound, codified legal system. The lack of a structured legal system has resulted in arbitrary judicial decisions that have put the investors in ambiguity. They’re not able to judge how much risk is attached to a particular investment; as a consequence, they’re not ready to invest in transactions.
The third major pitfall is the lack of exit opportunities. When PE firms are involved in a transaction, in most cases, they’re not able to find any exit if and when it’s necessary. IPO exits, leveraged capitalizations, and secondary buyouts are rare in Saudi Arabia. As a result of which the only alternative is trading sales. A trade sale is a way to sell out the stakes to corporate entities to come out of an investment.
According to the 10th Annual Report of MENAPEA, in 2016, only 32% of private equity activity would have been taken place in Saudi Arabia. It’s second in volume for the entire MENA region, but there is a huge difference from the first, UAE (54%).
Why it’s relevant?
Because in 2015, Saudi Arabia was on top by capturing 34% of the entire region, and UAE was in the third position with only 24%.
Just in a year, the equation has been changed.
If the above issues will not be solved, it would be tougher for Saudi Arabia to grow exponentially and be the best destination in MENA for the private equity market.
Private Equity in Saudi Arabia – Services Offered
So what sorts of services private equity firms in Saudi Arabia look at? Better to say what kind of areas they concentrate on to make their marks? Here are the top four areas of private equity firms in Saudi Arabia look at –
- Acquisition of significant stakes in family-owned business: This is the major market in Saudi Arabia. And the private equity firms are trying to tap into the opportunity. It is seen that many families owned business in Saudi Arabia has been facing issues with their management or succession planning. And as a result, they’re not able to operate at the same efficiency. Through the experience and expertise of these private equity firms, they are trying the route of exit or making things better by leaving the major stake to private equity investors or going for an initial public offeringInitial Public OfferingInitial Public Offering (IPO) is when the shares of the private companies are listed for the first time in the stock exchange for public trading and investment. This allows a private company to raise the capital for different purposes. (IPO). It’s a win-win for both of them. On the one hand, the family business will be run well, and on the other hand, it is a great deal for private equity firms.
- Acquiring partnerships with international businesses: Businesses who have an interest in coming into Saudi Arabia, private equity firms help them build a business in the Saudi Arabian market. The private equity firms help these international brands look for target businesses in Saudi Arabia and then see how much partnership they can acquire (often up to 100%) on their behalf. This is an area of expertise of private equity firms since the Saudi Arabian market is still emerging, and there are huge opportunities for international businesses.
- Acquiring minority stakes in blue-chip companies with IPO prospects: Private equity firms in Saudi Arabia want to make their mark, and they want to go for every opportunity they have in front of their eyes. Thus, they look for blue-chip companiesBlue-chip CompaniesBlue-chip stocks refer to the stock of large stable companies having market capitalization in billions that provide a good return on stocks, may provide dividends, have less risk and are considered to be safe investments. Examples of such stocks include Coca-Cola ltd, IBM Corp, Boeing Co., PepsiCo, General Electric (GE), Intel, Visa, Wal-Mart, IBM Corp, Apple, Walt Disney, Mc Donald’s, Goldman Sachs, Johnson & Johnson, etc. that are about to exit through IPOs. These private equity firms look for minority stakesMinority StakesMinority interest is the investors' stakeholding that is less than 50% of the existing shares or the voting rights in the company. The minority shareholders do not have control over the company through their voting rights, thereby having a meagre role in the corporate decision-making. in blue-chip companies, and they are able to work with the management team of investee companies and ensure a successful exit through IPO within a stipulated time period.
- Investment in SMEs: Like investing in family businesses, SMEs in Saudi Arabia are a great market that private equity firms are now aiming at. Small and medium-sized businesses that want to grow within the local periphery get complete support from these private equity firms. To get the help of private equity firms, small and medium businesses should have at least 3 years of continuous existence in the market, and the businesses should be scalable. Private equity firms in Saudi Arabia work with the management of these SMEs and add value to improve their management capabilities and enhance the strategic output at an accelerated rate.
Top Private Equity Firms in Saudi Arabia
There are three private equity firms in Saudi Arabia that we should know about. Have a look at them –
- Alkhabeer Capital: This is one of the topmost private equity firms in Saudi Arabia that offers many services like IPOs, SME Finance, Merger & Acquisitions service, etc. The firm was founded in the year 2008 in Jeddah. Website
- Ithraa Capital LLC: This is one of the top-notch investment banks in Saudi Arabia, which also has a private equity (research) division. The firm was established in Riyadh, and it offers various services like mergers, acquisitions, IPOs, financial and corporate restructuring, and private placement of shares. Website
- Maceen Capital: Maceen Capital is one of the most popular private equity firms. It was founded in 2008 in Riyadh. It also offers modeling and valuation services, financial reviews, restructuring, and mergers & acquisitions services. Website
- Jadwa Investments: Jadwa, along with its investors, have invested over SAR 5.4 billion in 10 private equity transactions. Website
Private Equity in Saudi Arabia – Recruitment Process
The recruitment process in Saudi Arabia is different than the sourcing process in the UK and the USA. As the Saudi Arabian private equity market is still emerging, getting into private equity is still easier. So what would you do is you want to get into the private equity market in Saudi Arabia?
Here’s a step by step process to get you started –
- Sourcing from the universities & institutes: Since the private equity market is pretty small compared to the other parts of the world, the major source of recruitment is done from universities and institutes. However, there are other ways through which candidates get into private equity firms.
- By applying online directly: If you are not fortunate enough to be picked from your university, you may need to take a direct path. All you need to do is to go to the website of the particular private equity firm and find out the “career” page and apply online through the instructions given. In most of the cases, if you can send a great resume (written with private equity languages) and a cover letter, you may/may not get through. You know how many resumes HRs go through on a daily basis! And out of all, only 5-10% of the resumes get shortlisted for the preliminary round (“fitment” interview).
- The power of networking: This is the most important thing to do if you want to get ahead of the curve. Network as much as you can. Get a list of people who have studied in your college, find out how many works in private equity, get their contact details, and directly contact them. Many won’t respond to you, but few will. And though few people, you will get a couple of interviews or a few internship opportunities. Never let these opportunities go. Go for a couple of internships (summer internships are popular in Saudi Arabia) in top-notch firms. And whatever interviews you go for, make sure that you are thoroughly prepared for all of these interviews.
- Style of interviews: In Saudi Arabia, a recruitment agency is hired to hire good private equity candidates for private equity firms. These recruitment agencies go through the campuses and pick great talents. And also they look for candidates outside. No matter what, the first round is always a “fitment interview.” The recruitment agencies conduct this first round to see whether the candidate is a good fit for the particular team. If yes, there is a second round with the partner and a solicitor. If you can clear this round, there would be another round, usually the last round. In the last round, you will be interviewed by the MD and HR of the firm, and they will find the best candidate among all.
Private Equity in Saudi Arabia – Culture
As the entire environment is different in Saudi Arabia, the work culture is also pretty different.
There are two things to talk about work culture.
- First, people in private equity firms are not so pressed up for funds like the UK or the USA. They take a slow approach in handling clients, and the clients are also okay with it. Thus, rarely do people work 100+ hours in private equity firms. They work normal hours, and they maintain a healthy work-life balance, which helps them set aside a large chunk of time for family. Normally, you would get 52 days of holidays a year, and during the festive season, you can work half day because most of your clients would be out of the office. 95% of businesses in Saudi Arabia are family businesses. So even in the business scenario, people value relationships over technical skills.
- Second, in private equity firms in Saudi Arabia, you will get a lot of diversity these days. People belong from different countries, and they are working together as a team to ensure optimum success.
Private Equity in Saudi Arabia – Salaries
In this section, we will look at the salary details for private equity professionals in 2014. These data will help us understand what could be the future salaries for private equity professionals in Saudi Arabia.
In 2014, Arab World Careers did a study which resulted in a series of data of various professionals. We will highlight the portion of the compensation of private equity and investment banking professionals at all levels.
The above salary guide doesn’t include a performance bonus. From the above list, it’s clear that the basic compensation is not as high as it is in the UK or the USA. But, if we consider that the whole income is tax-free (no income tax, no sales tax, no VAT), then the compensation is quite good.
The bonus compensation is dependent on performance. So if you can perform well, you would be able to bring in hefty compensation, and you don’t need to pay taxes. But if you’re in the USA, then your salary wouldn’t be completely tax-free.
Private Equity in Saudi Arabia – Exit Opportunities
In real scenarios, not many people in Saudi Arabia work in private equity. But people who do are pretty happy with their job, work hours, and compensation. As a result, rarely do people think of exit opportunities.
But when people do, there are usually three options.
- Private equity professionals go for venture capital firms. There are many venture capital firms in Saudi Arabia, and PE professionals would like to explore different opportunities.
- Or, they go for hedge funds/investment banking. Investment banking is doing pretty good in Saudi Arabia, and lots of foreign banks are also coming in Saudi Arabia to source opportunities.
- The last option is they are shifting from Saudi Arabia and going into other countries like the UK or the USA to hone their technical skills and to earn better career prospects.
You would be better off in private equity if you go to the UK, USA, and even in Dubai. Saudi Arabia is still an infant in terms of private equity, and there is a massive opportunity for the private equity sector to grow, and we can expect that in the next decade, it would come up with some wonderful private equity deals.