M&A in KSA – GAC applications: what you need to know!

1.GAC regime

When conducting mergers or acquisitions in the Kingdom of Saudi Arabia (KSA) it is important to consider whether approval is required from the KSA’s General Authority for Competition (GAC).  There are significant penalties for failure to do so. 

The GAC regime is set out in the KSA Competition Law (issued by Royal Decree No. (M/75) dated 29/6/1440 H corresponding to 6 March 2019) (the Competition Law) and the Implementing Regulations of the Competition Law (issued by the GAC Board of Directors Resolution No. (337) dated 25/1/1441 H corresponding to 24 September 2019) (the Regulations).

2.When is notification to gac required?

Notification to the GAC is required for “economic concentration” transactions.  These arise relatively commonly in the KSA. 

3.Economic concentration

“Economic concentration” is defined in the Competition Law as “Any activity that results in the total or partial transfer of ownership of assets, rights, stocks, shares, or obligations of an entity to another, or in the combining of two or more managements into one joint management, in accordance with the Regulations.” 

The definition extends to acquisitions (for example, the purchase of shares in a company) as well as mergers (for example, two existing companies forming a new incorporated joint venture).

4.Notice period

Pursuant to the Competition Law, entities that wish to enter into an “economic concentration” transaction must submit a notification to the GAC at least 90 days before completion of such transaction.

5.Total annual sales threshold

The Regulations provide that a notification to the GAC will be required if the total annual sales of all parties involved in the economic concentration exceeds SAR 200 million (approximately US $53 million), which has recently been increased from SAR 100 million.

Care needs to be taken when determining whether this threshold has been met.  Depending on the circumstances, the parties involved might extend further than simply the buyer, seller and/or the target.  For example, the total annual sales of, say, the target group of companies or, in the case of a merger, both joint venture parties’ holding companies might be captured. 

It is irrelevant from GAC’s perspective whether or not the relevant holding companies are incorporated inside or outside of the KSA. 

Typically, the turnover for each party is calculated by reference to their financial statements for the previous financial year. 

6.Supporting documents

If a notification to GAC is required to be made, then the following supporting documents will typically be required from each relevant party:

• articles of association;
• financial statements;
• the relevant ‘economic concentration’ agreement (for example, an executed share purchase agreement or executed joint venture agreement (the GAC does not accept draft agreements);
• commercial register extract; and
• report prepared by the relevant parties setting out the economic implications of the transaction (including the estimated market share of the combined parties post-transaction and the positive and negative effects of the transaction on the relevant market or sector).

7.Application fees

The fee for the GAC notification is 0.02% of the combined turnover of all parties involved, capped at a maximum of SAR 250,000 (which has recently been decreased from SAR 400,000).

8.Penalty for failure to notify or obtain approval

The penalty for failure to submit the notification to, or obtain the approval of, the GAC will typically comprise an amount equal to 10% of the annual sales of the entities the subject to the violation.  Please note that the entities included will depend on the type of transaction (for example, whether it’s an acquisition or a merger). If it is not feasible to calculate the relevant annual sales, a fine not exceeding SAR 10 million may be imposed.

The GAC may also require the parties to unwind the transaction amongst other penalties.

9.GAC approval

The GAC can take up to 90 days to provide its decision following the preliminary submission.  The GAC can either approve, conditionally approve or reject the transaction.  If the GAC does not respond to a notification after 90 days of the GAC acknowledging receipt of such notification, then its silence shall be deemed to be an automatic approval of the transaction.

Please note that this article does not constitute legal advice.  If you wish to obtain legal advice in relation to the application of the Competition Law and Regulations to your specific circumstances, please contact us.