Acquisitions and mergers in Saudi Arabia : reasons and effects

Abstract

The high scale of acquisition and merger's activity has produced great interest among academic and policy makers alike, resulting in the development of a considerable amount of research on the advantages and disadvantages of A&Ms. Previous literature however, focused on the A&Ms' activity in advanced capitalist countries, specifically the USA and UK. Studies of A&Ms in developing countries are rare; this research attempts to fill part of this gap by investigating reasons for and effects of A&Ms in Saudi Arabia. Three main causes are behind the transfers of corporate assets within industry in the Anglo-American nations and some developed countries; managerial, disciplinary and economical. This study, however, suggests that the only group of causes behind A&Ms in S.A., among these three groups, is economical. Recently, the literature described A&Ms' decisions not as comprehensively rational choices but as outcomes of processes governed by several influences. This group of reasons was also tested in this study and gained its support. With regard to A&Ms' effects on firms' profitability as well as on the economic conditions, the research finds that A&Ms in S.A. are expected to improve merging firms' abilities to compete and to improve their profitability. Moreover, favourable effects on economic welfare was accepted. A reasonable step in A&Ms activity is to determine whether there are particular characteristics of A&Ms which are systematically linked to positive or negative effects on the performance. The current research finds that determinants of success could be predictive if analysed with a relationship to the type and cause of A&Ms. This study suggests that the type of A&M (consolidation or acquisition) and causes for A&Ms (synergy or assets stripping) affects the factors of A&Ms' success and failure. These findings were based on a survey of the top 500 Saudi Arabian companies, of whom 124 companies responded to the questionnaire as well as on seven personal interviews with seven executives, who experienced A&Ms before and who answered the questionnaire and accepted to meet the researcher.