Budget Saudi announces successful acquisition of Autoworld

Details of the Transaction

Following the approval of the shareholders at the EGM, seven million (7,000,000) ordinary shares paid in full will be issued by Budget Saudi to SEDCO Holding and are expected to start trading on the Saudi Exchange upon completion of the necessary procedures with the exchange and Securities Depository Center Co. The new shares represent 8.96% of Budget Saudi’s share capital after the capital increase. Once the new shares are issued in favor of SEDCO Holding, a Shariah Saudi institutional investor with deep experience and a strong track record of investing in national champions, it will, directly and indirectly, own  8.96% of Budget Saudi.

AutoWorld’s shares will be transferred from SEDCO Holding to Aljozoor Alrasekha, a Budget Saudi wholly-owned subsidiary.

Commenting on the transaction, Fawaz Danish, President & Group CEO, Budget Saudi, said:

“The strategic acquisition of AutoWorld provides a robust platform for future growth opportunities, bolstered by the strong KSA real economy, structural changes in the transportation sector, and the flourishing tourism industry. This deal, the first of its kind in Budget Saudi’s history, enables us to lay the groundwork for strategic initiatives that drive sustainable growth, enhance competitiveness, and create shareholder value.”

Market Share Growth

With this acquisition, Budget Saudi will solidify its position as a market leader in the long-term vehicle rental and leasing market in KSA. According to a credible third-party market report, the acquisition will increase the Company’s market share from approximately 12% to approximately 18%. AutoWorld’s fleet size of approximately 14,000 vehicles brings Budget Saudi’s total car leasing fleet to c. 49,300 (based on FY 2023 figures), representing a strategic move to consolidate KSA’s auto leasing market and enhance service quality in the evolving transportation sector.

This acquisition reinforces Budget Saudi’s market share in the business-to-business  (B2B) and business-to-government (B2G) segments, where management foresees significant growth potential driven by a market shift from asset ownership to usership models. Additionally, it enhances its ability to set competitive pricing, improving overall profitability in the mid to long term.

Customer Portfolio Growth and Diversification

The acquisition is set to expand Budget Saudi’s customer base, granting access to new customers in key industry verticals such as oil and gas, among others where AutoWorld has a strong presence. By acquiring a competitor with a complementary fleet and service offerings, Budget Saudi can diversify its portfolio, catering to a broader range of customer needs and preferences. This diversification helps mitigate risks associated with market fluctuations and changing consumer preferences.

Post-acquisition, Budget Saudi plans to merge its Payless brand, a short-term car rental business,  with AutoWorld to tap into more price-conscious customers, including residents, business travelers, and leisure travelers, further diversifying and growing its customer portfolio.

Cost Synergies to be Fully Realized in First 3 Years Post Consolidation

The acquisition will unlock significant cost synergies, reduce redundancies, and achieve economies of scale, leading to improved profitability in the mid to long term. These efficiencies extend to better fleet utilization, optimized procurement, enhanced negotiating power with major suppliers, insurance providers, and other vendors, and consolidated administrative functions.

The combined entity will benefit from optimized operations and shared resources, reducing redundant costs and enhancing overall agility and responsiveness to market demands. Based on independent third-party experts’ estimates, the Company anticipates achieving significant recurring cost synergies per year from year 3 onwards post-integration.

Potential for EPS Accretion

AutoWorld is a profitable company with a healthy profitability margin in line with industry averages. This acquisition is expected to be EPS accretive post-integration. Management anticipates realizing debt cost savings through better terms for AutoWorld’s existing debt. Post-integration, and upon realizing cost synergies, Budget Saudi expects AutoWorld’s net profit to expand further, enhancing future consolidated net profit and margins.

Strengthened Brand and Customer Loyalty

The integration of two well-known and reputed brands will lead to a stronger, more unified market presence. By harmonizing the best practices and value propositions of both companies, Budget Saudi aims to enhance customer satisfaction and loyalty, contributing to long-term revenue growth.Brief Summary or introductory paragraph.

Budget Saudi has seen substantial growth in its revenues and fleet. As part of its growth strategy — and in accordance with Vision 2030 — the company has launched a diversity of sustainable green initiatives to reduce the carbon footprint of its fleet.

Key Transaction Highlights