Recently, on 8 November 2023, the Saudi Arabian General Authority for Competition ("GAC") made a number of changes to its merger control filing thresholds. The new rules bring the Saudi merger regime closer to the ICN Recommended Practices for Merger Notification and Review Procedures and merger control practices in many jurisdictions. However, some concerns remain with regard to the proper scope of the GAC's new filing thresholds and the impact of those rules on both foreign-to-foreign and local M&A transactions.

Until November 2023, the GAC's Merger Review Guidelines stipulated that a notification to the GAC was required if the total annual sales of all the parties involved in an "economic concentration" exceeded SAR 200 million (approximately USD 53 million). Prior to 15 March 2023, a lower unitary threshold of SAR 100 million applied. The new rules introduce two additional (cumulative) thresholds that effectively exempt acquisitions of small target companies, as well as transactions that only involve firms with very limited revenues in the Kingdom of Saudi Arabia.

The applicable cumulative filing thresholds are now as follows:

 

1. The total combined worldwide revenues of the parties involved in the economic concentration must exceed SAR 200 million (approximately USD 53 million) in the previous financial year;
   
   
2. The total worldwide annual revenues of the target company must exceed SAR 40 million (approximately USD 10.6 million) in the previous financial year; and
   
   
3. The combined total revenues of the parties involved in the economic concentration in Saudi Arabia 's must exceed SAR 40 million (approximately USD 10.6 million). 

 

The practical effect of the changes is that foreign-to-foreign M&A transactions involving target companies with limited or no sales in Saudi Arabia are no longer notifiable in Saudi Arabia, provided that in addition the buyer and/or the seller have no meaningful sales in the Kingdom either. However, acquisitions of non-de minimis target companies with little sales in Saudi Arabia remain notifiable, if the buyer's and seller's group, together with the target group, exceed USD 10.6 million revenues in the Kingdom.

There is a widely held view that jurisdictions should only assert jurisdiction over transactions that have a material nexus to the reviewing jurisdiction and that jurisdictions should seek to screen out transactions that are unlikely to result in appreciable competitive effects within their territories. Moreover, a competition authority's determination of a transaction's nexus to its jurisdiction should preferably be based on activities within that jurisdiction as measured by reference to the activities of at least two parties to the transaction in the local territory.

While the new rules clearly present a step in the right direction, they could be further expanded and modified to reflect the local nexus principles more adequately. Many commentators and practitioners would also welcome a recalibration of the notion of "economic concentration" and formally omitting the seller's activities from the analysis in the event of straightforward acquisitions. 

Having said this, over the past few years, the GAC has made significant advances and has established itself as one of the authoritative, if not the most prominent, competition authorities in the region. Nowadays, the GAC routinely processes a few hundred merger notifications annually, actively investigates allegations of anticompetitive conduct and conducts market inquiries. Recent experiences have also seen marked changes to the economic analysis of transactions and business conduct. Nonetheless, the notification of mergers and other M&A transactions in the Kingdom may not always be straightforward.

For more than two decades, Baker Botts LLP's corporate and competition law team in Riyadh and Brussels have assisted clients on Saudi Arabian competition law matters, including GAC investigations, administrative and civil courts appeals and merger filings. The team is fully integrated into the firm's global antitrust section based in Washington D.C., Brussels and London. 

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