Mezzan Holding, one of the largest food, beverage, and pharma manufacturing and distribution companies in the Middle East, is planning a joint venture with Al Faisaliah Group in Saudi Arabia’s food manufacturing and distribution sector. Under the terms of the agreement, Mezzan would acquire a 70% stake in Al Safi Food Company, a subsidiary of Al Faisaliah Group, in exchange for a contribution of an estimated KD7-7.7 million (US$23.3-$25.6 million). The transaction is expected to close in six to eight weeks.

Mezzan currently operates in seven countries surrounding the Persian Gulf. The joint venture will allow Mezzan to manufacture, market, and distribute food products in Saudi Arabia through the current bakery and snacks line of Faisaliah Group as well as all other Mezzan Holding Brands.

Since the 70-year-old company’s debut on the Kuwait Stock Exchange in June 2015, Mezzan has seen positive growth, reporting a 31.8% year-on-year increase in net profit at the close of 2015, and a further 5.3% increase in revenues in Q1 2016. In May 2016, it was named Arabian Business’s “Consumer Goods Company of the Year.”

The JV is expected to significantly increase Mezzan’s exposure to a key market. Mezzan’s Vice-Chairman, Mohammed Al Wazzan, said in a company statement, “Saudi Arabia represents a key growth market for our company, and Al Faisaliah Group is a strong, reputable company that we look forward to partner with to grow our Saudi business.”

The Saudi food processing sector has experienced rapid growth in the past decade, primarily due to help from government subsidies to food processing companies, rising per capita income, and demographic and socio-economic changes. Between 2002 and 2012, investment in the Kingdom’s food processing sector has increased from $4 billion to $12.3 billion. Sales of packaged foods are expected to reach $45 billion by 2017, up 88% since 2008. This rapid growth has prompted several multi-national food processing companies to engage in joint ventures or acquisitions of Saudi companies: in the last three years, global players including Mondelez International and Mars have entered the market. While a significant part of Saudi processed food production, estimated at $2.9 billion in 2014, is exported, most Saudi food manufacturers rely on imports to secure food ingredients and raw materials.

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Eric Francucci