Riyadh – Mubasher: A recent report by KPMG is expecting merger and acquisition (M&A) deals in Saudi Arabia and other Arabian Gulf countries to increase amid the coronavirus disease (COVID-19) pandemic.

With many small and medium-sized enterprises (SMEs), as well as large corporates looking for equity via capital injections to enhance their working capital, deal-making will favour buyers, according to the report.

“The current pandemic is creating a lot of uncertainties and contradictions in what to expect after the dust settles. The expected key impacts on companies are shortages of liquidity and working capital requirements. Though companies might be running a healthy [profit and loss], there will be significant pressure on working capital requirements,” said Ali Maabereh, Head of M&A at KPMG in Saudi Arabia.

The assumptions remain heavily dependent on investors being bullish in seizing investment opportunities, he further indicated.

“The need for immediate cash could drive the acceptance of low valuation multiples offered by buyers,” Maabereh added.

A certain focus in the food and beverage sector is expected to shift towards backend businesses such as food production, supply and logistics, rather than retail.

In Saudi Arabia, investors are expected to focus on economic diversification and sustainability, and sectors such as industry and manufacturing.

As for the broader GCC region, there will be an opportunity for “portfolio diversification of global conglomerates, specifically in Saudi Arabia with the new ease of restrictions for foreign investors,” the report remarked.

Maabereh concluded that “even though warranties are most probably going to be in-favour and dictated by buyers given the risk associated with any potential transaction, deals are likely to be structured in ways to protect buyers such as earnouts, leveraged buyouts, mezzanine funding and shareholder loans.”