#SaudiArabia: Venture Capital Firms Bet on M&A as Listings Get Tougher - Bloomberg

Saudi Arabia: Venture Capital Firms Bet on M&A as Listings Get Tougher - Bloomberg

Saudi Arabian venture capital firms expect more mergers and acquisitions in the startup space, as stock market weakness and higher valuation scrutiny make initial public offerings less appealing.

Investors want exposure to fast-growing companies, but without the volatility that comes with public markets, said Abdullah Altamami, founder and chief executive officer of Merak Capital. “Buyers are more interested in companies before they go public, because once they go public, they’re more expensive.”

As a result, M&A and secondary transactions are set to account for a greater share of exits in the kingdom if conditions remain tight, Altamami said. Merak Capital, which manages about $800 million, expects five to 10 liquidity events across its portfolio over the next 12 to 24 months, spanning IPOs, acquisitions and secondary deals.

The shift comes as Saudi Arabia’s startup ecosystem matures under Vision 2030, the government’s push to diversify the economy beyond oil. Venture firms have backed companies across sectors including gaming, fintech, cybersecurity, tourism and fashion.

But public markets have come under pressure this year. The Saudi benchmark index is among the worst performers in emerging markets, and while IPO proceeds have held steady at around $4 billion, several recent listings have struggled.

Meanwhile, the Middle East became the leading M&A destination across emerging venture markets in the first nine months of the year, with 26 deals, according to data platform Magnitt.

Against that backdrop, acquisitions and secondary sales are emerging as a quicker, more dependable route to returns.

“The market is reaching a level of maturity where more M&A opportunities will surface,” said Basmah Alsinaidi, managing partner and vice chair at Impact46. She expects activity to be driven both by technology companies seeking scale and by traditional businesses looking to add digital capabilities.

Impact46 has backed firms including Jahez International Co. and Rasan Information Technology Co. that have listed on Saudi exchanges in recent years. Its portfolio also includes Lucidya, a customer experience management platform, and Tamara, which became a unicorn — a startup valued at more than $1 billion — in 2023.