Middle East M&A deal value nosedives by over half in H1 2020

10 September 2020 Consultancy-me.com 3 min. read

Merger & acquisition (M&A) activity in the Middle East fell significantly over the first half of 2020, although some signs of promise emerged towards the end of the period. This is according to a new report by Baker McKenzie.

The decline is very much a result of the Covid-19 induced spending crunch, and reflects a similar M&A contraction across the globe. According to Baker McKenzie, year-on-year decline in global deal value from the first half of 2019 exceeds 40%, representing a drop of more than 30% from the end of last year.

In the Middle East, the fall has been even more severe. Deal values dropped by nearly 60% year-on-year for the same period, accompanied by a volume dip of more than 25%. What was previously a vibrant M&A market – exemplified by the mammoth Aramco deal last year – has taken a significant hit from the pandemic and the resultant economic crisis.Merger activity in the Middle East and AfricaThat being said, not all is gloom and doom. While the initial period of 2020 has been tough, May and June actually saw a notable spike in Middle East deal value. Lockdown dust had settled by this point, and most economies had announced plans to reopen, bringing the economic sentiment up to a certain extent.

In the Middle East, deal value for May and June catapulted from short of $3 billion for the same period in 2019 to more than $33 billion this year. According to Partner & Head of Corporate M&A Practice Group at Baker McKenzie Omar Momany, the spike is a promising signal of what lies ahead.

“The dramatic increase in the value of deals made during the final two months of H1 2020 showcases a positive outlook and an early recovery sign for M&A activity for the remainder of the year. As the world begins to emerge from Covid-19, we can expect markets to begin to bounce back leading to more opportunities for investment, distressed M&As and consolidation within the region,” he said. 

The assessment is not far off from what other experts are saying. In June, Head of M&A at Big Four accounting and advisory firm KPMG indicated that large corporates are likely to up their deal activity in coming months, motivated by the need for working capital and egged on by a favourable buyers' market.

Energy and Technology lead the way

For the Middle East, the sector-wise distribution of M&A activity could offer valuable insight on where the action will be as momentum picks up. No doubt, the cross-border deal segment took the largest hit in an uncertain international market. However, most of the money that did flow in went to the Middle East’s energy & power segment.

Total merger activity in the World and Middle East

Most economies in the region are looking to diversify beyond the oil & gas segment, and companies in the sector are investing in alternative energy capabilities to secure themselves for the long term. The sector is rebuilding, which signals a market ripe for deals. The four deals in this segment since the start of this year pulled more than $10 billion. When it comes to volume, the tech sector saw the most this year with nine deals drawing nearly $200 million.

Looking outward, most corporate in the Middle East looked to the industrials and real estate sectors, which drew 16 and 12 deals respectively. The telecom sector, meanwhile, saw the highest value deals outbound from the Middle East, exemplified by the Vodafone Egypt and Saudi Telecom deal that is expected to draw more than $2 billion.

In terms of destination, the US was the primary centre for both inbound and outbound M&A from the Middle East, with Hong Kong, Egypt, India and the United Kingdom playing key roles as well.

Meanwhile, in the Initial Public Offering (IPO) market, the potential listing of Saudi Aramco next year is forecasted to provide a mega one-off boost to proceeds.