The United International Transportation Company, also known as Budget Saudi, has officially received its shareholders’ nod for the strategic acquisition of Al-Jazeera Equipment Company (“Alam Alsayarat”), previously held by SEDCO Holding, during the extraordinary general meeting on June 24, 2024. This pivotal move marks a significant milestone for Budget Saudi, heralding new horizons for strategic expansion in the bustling Saudi market ripe with growth and development opportunities.
Deal Details
In accordance with the extraordinary general meeting’s approval, Budget Saudi is set to issue 7,000,000 full-paid ordinary shares to SEDCO Holding. These shares are expected to commence trading on the Saudi Stock Exchange (Tadawul) following the completion of formalities required by the Saudi Capital Market Authority and the Securities Depository Center (Edaa). Consequently, these new shares will represent approximately 8.96% of Budget Saudi’s post-increase issued capital. Thus, SEDCO Holding, a leading Saudi company aligning its investments with Islamic Sharia principles and with a rich history of investing in prominent national companies, will own direct and indirect stakes amounting to 8.96% in Budget Saudi.
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Through this transaction, Alam Alsayarat’s shares will transfer from SEDCO Holding to ‘Al-Judur Al-Rasikhah’, a wholly-owned subsidiary of Budget Saudi.
Commenting on the deal, Fawaz Danish, the CEO of Budget Saudi, stated: The strategic acquisition of Alam Alsayarat unlocks vast prospects for future growth opportunities, thanks to the robust and expanding economic ecosystem in Saudi Arabia, as well as qualitative transformations in the transport sector, accompanied by consistent growth in the tourism industry. This transaction, a first in Budget Saudi’s history, lays the foundation for upcoming strategic initiatives that will drive sustainable growth, enhance competitive capabilities, and create added value for shareholders.
Market Share Growth
Post-acquisition, Budget Saudi aspires to solidify its position as a leading player in the long-term car rental market in the Kingdom. According to a report by an independent entity, Budget Saudi’s market share is projected to grow from around 12% to nearly 18% as a result of this acquisition. Alam Alsayarat’s fleet of 14,000 vehicles will join Budget Saudi’s existing fleet of approximately 49,300 vehicles (based on the 2023 fiscal year figures), strategically bolstering its role in the constantly evolving transportation sector of the Kingdom.
This acquisition is also expected to enhance Budget Saudi’s market share in the Business-to-Business (B2B) and Business-to-Government (B2G) sectors, with the company’s management foreseeing substantial growth potential driven by market trends transitioning from asset ownership to leasing models. Furthermore, the deal will enable the company to offer more competitive pricing, positively reflecting on its long-term gross profit growth.
Customer Base Growth and Diversification
The acquisition broadens Budget Saudi’s customer base by tapping into new clients within vital sectors such as oil and gas, where Alam Alsayarat already has a strong presence. Acquiring a competitor with a vast fleet and complementary services will allow Budget Saudi to diversify its portfolio, enhancing its ability to meet a wide range of customer needs. This diversification enables the company to adapt to market fluctuations and ongoing changes in customer preferences.
Following the acquisition’s completion, Budget Saudi plans to merge its short-term car rental brand ‘Payless’ with Alam Alsayarat, aiming to attract a broader client base looking for cost-effective rental options, including residents, business travelers, and leisure travelers. This strategic move promises to further diversify and grow its customer base.
Full Cost Savings Realized Within Three Years of Business Integration
The acquisition is poised to generate significant cost savings, reduce redundancies, and achieve economies of scale, which will improve profitability in the medium to long term. The deal also promises optimized fleet utilization, improved procurement processes, enhanced negotiating power with key suppliers, insurance service providers, and other vendors. Additionally, administrative functions and roles will be consolidated.
The newly formed entity will benefit greatly from optimized operations and shared resources, contributing to the reduction of excess costs and enhancing overall flexibility and market responsiveness. Based on estimates by independent experts, the company anticipates significant annual recurring cost savings, starting from the third year following the merger of the two companies.
Robust Potential for Profitability Growth
Alam Alsayarat is a profitable company with strong profit margins compared to the industry average. The merger is expected to have a positive impact on earnings per share post-integration. Management anticipates achieving debt cost savings through renegotiated terms for Alam Alsayarat’s current debts. After business consolidation and cost-saving measures, Budget Saudi expects Alam Alsayarat’s net profits to grow, thereby enhancing the consolidated net income and future profit margins.
Strengthening Brand Presence and Enhancing Customer Loyalty
The merger of two renowned brands will help build a stronger, more integrated entity in the market. By adopting best practices and combining the value offerings of both companies, Budget Saudi aims to improve customer experience and loyalty, which is expected to drive long-term revenue growth.
