Mergers and acquisitions are among the most important tools used in corporate development and restructuring. They help improve operational efficiency, expand market share, and support strategic growth. And although the two terms are often used interchangeably in business contexts, Saudi law clearly distinguishes between them—both in their legal nature and in the regulatory consequences that follow each one. This article aims to outline the key differences between mergers and acquisitions under the Saudi Companies Law issued by Royal Decree No. (M/321) dated 01/12/1443H, as well as other related regulations. It also highlights the legal and regulatory implications of each, as follows:
First: Concept of Mergers and Acquisitions
A merger is the combination of two or more companies into a single entity. This can happen either by transferring one or more companies into an existing company, or by merging multiple companies to establish a completely new entity. The term is also defined in the glossary of the Capital Market Authority’s rules as:
A transaction—completed in any form—where a listed company is the target, and the transaction results in any of the following:
- Merging the target company into another listed company.
- Merging the target company into a company that is not listed.
- Creating a new legal entity through the merger of two or more companies, including the target company.”
On the other hand, an acquisition refers to the process of buying or taking ownership of another company or organization by purchasing its shares or its assets. The Capital Market Authority defines it as: “A transaction involving the sale and purchase of shares of a listed company through a tender offer or a private share purchase agreement.
Second: Key Differences Between Mergers and Acquisitions
Although the terms are commonly treated as synonyms in the business world, they differ significantly from a legal and regulatory standpoint:
A- An acquisition involves buying all or part of a company’s shares or ownership interests. While the merger involves combining two or more entities into one—either by joining them under an existing company or by creating a new company altogether.
B- In a merger, a new legal entity may be formed, or an existing company expands by absorbing others. While an acquisition, the legal identity of the target company does not change. What changes is the ownership structure, which may shift control and decision-making authority to the acquiring party.
C- An acquisition is usually less costly than a merger, because it is done through purchasing all or part of the shares or ownership interests in the target company—without the need to combine the structures of both entities. A merger, on the other hand, tends to involve higher costs due to the required integration of organizational structures, systems, and operational procedures between the merging companies.
D- In an acquisition, the operations of the acquired company typically remain separate from those of the purchasing company. In a merger, however, the operations are combined, and priorities are aligned to ensure consistency and harmony between the two entities.
Third: Key Legal Challenges in Mergers and Acquisitions
Although mergers and acquisitions are essential strategic tools for growth and restructuring, implementing them often involves several challenges, the most notable of which include:
- The complexity of legal and regulatory procedures required to obtain approvals from the relevant authorities.
- Overlapping and sometimes conflicting regulatory requirements across different laws and regulations, such as the Companies Law and Capital Market Authority rules.
- Differences in the legal consequences of mergers versus acquisitions—particularly regarding the legal status of the involved entities and the transfer of rights and obligations.
- Failure to accurately identify all potential risks and liabilities before completing the transaction.
Fourth: Our Role at NKL
At NKL, we provide full legal support throughout all stages of merger and acquisition transactions. This includes conducting legal due diligence, reviewing contracts and legal obligations, ensuring compliance with all relevant laws and regulations, assessing potential risks, drafting agreements, and completing the required regulatory approvals.
Through our expertise, we aim to help our clients complete their transactions efficiently and in full compliance with the law, ensuring that their strategic objectives are achieved and their legal positions remain secure. Our services include:
- Preparing legal due diligence reports by assessing the legal status of target companies and identifying potential risks.
- Reviewing contracts and legal obligations to verify their validity and protect our clients’ interests.
- Ensuring compliance with all relevant laws and regulations, including the Companies Law, Capital Market Authority rules, and other applicable legal frameworks.
- Drafting the contracts and agreements that govern merger or acquisition transactions to provide comprehensive legal protection.
- Completing regulatory approvals and overseeing formal procedures to secure all necessary authorizations from the competent authorities.
We work to ensure that clients can carry out their transactions efficiently and in full compliance, enabling them to achieve strategic goals while safeguarding their legal standing after the transaction is completed.
