Introduction
In today’s business landscape, mergers, acquisitions, and takeovers have become key strategic tools for growth, restructuring, and market expansion.
They help companies enhance efficiency, expand into new markets, strengthen competitiveness, and achieve long-term financial stability.
This article explains the differences between mergers, acquisitions, and takeovers, highlighting their characteristics, objectives, and the legal framework governing them in Saudi Arabia.
- Mergers
A merger occurs when two or more companies unite to form a new legal entity, combining their assets, liabilities, and operations.
Types of mergers:
Absorption Merger: One company absorbs another.
Consolidation Merger: A new company is created from two or more merging firms.
Horizontal Merger: Between companies in the same industry.
Vertical Merger: Between companies at different stages of production or supply chain.
Conglomerate Merger: Between unrelated industries.
Common motives:
Operational efficiency and resource optimization.
Market expansion and access to new technologies.
Cost reduction and risk diversification.
Strengthening market position and competitive advantage.
- Acquisitions
An acquisition occurs when one company purchases another, taking control of its assets, brand, and operations, while the acquiring company continues to exist independently.
Types of acquisitions:
Friendly acquisition: Approved by the target company’s management.
Hostile takeover: Conducted without management approval.
Leveraged buyout (LBO): Financed mainly through borrowed funds.
Horizontal acquisition: Between competitors in the same sector.
Vertical acquisition: Involving suppliers or distributors.
Conglomerate acquisition: Between unrelated industries.
Management buyout (MBO): The target company’s management team purchases it.
Examples:
PIF’s acquisition of a stake in Tawal (STC subsidiary) in 2024.
Almarai’s acquisition of Hail Agricultural Development Co. in 2009.
Uber’s acquisition of Careem in 2019.
- Takeovers
A takeover involves one company gaining a controlling interest in another while allowing both entities to remain legally separate.
The acquirer influences strategic decisions without fully integrating the acquired company.
Example:
Amazon’s takeover of Souq.com, where both companies continued to operate independently under their respective brands and teams.
Impact:
Takeovers often lead to organizational and managerial restructuring, brand or culture shifts, and changes in workforce roles or market competitiveness.
- Comparing Mergers, Acquisitions, and Takeovers
Aspect Merger Acquisition Takeover
Legal Outcome A new entity is formed Acquirer remains Both remain independent
Relationship Mutual agreement Dominant buyer Usually non-consensual
Objective Integration and synergy Market share and assets Strategic control
Decision Authority Joint board Acquiring company Controlling shareholder
Nature Cooperative Often competitive Sometimes hostile
- Corporate Motives
Mergers: Achieving synergy, efficiency, and shared market access.
Acquisitions: Increasing market share, eliminating competitors, or acquiring intellectual property.
Takeovers: Gaining control, restructuring operations, and leveraging strategic assets.
- Legal Framework in Saudi Arabia
These transactions are governed by a robust regulatory framework to ensure fairness, transparency, and compliance:
The Capital Market Authority (CMA) regulates mergers and acquisitions involving listed companies.
The General Authority for Competition (GAC) oversees deals to prevent anti-competitive practices.
The Saudi Companies Law defines the legal procedures for mergers, restructuring, and new entity formation.
Companies must obtain formal approvals, conduct legal and financial due diligence, and ensure shareholder protection before finalizing such transactions.
Conclusion
Mergers, acquisitions, and takeovers are vital instruments for corporate transformation and growth in Saudi Arabia’s evolving economy.
However, they require a deep understanding of legal, financial, and regulatory complexities.