Middle East's M&A market bucks global trend to grow by 6%

24 February 2021 Consultancy-me.com 4 min. read

Despite a 9% contraction in global merger & acquisition (M&A) activity last year, the Middle East remained resilient to clock a 6% jump in the number of deals for 2020. A new PwC report explains how the region bucked the global trend.

The Middle East was home to 235 deals through 2020 – a 6% jump from 211 deals completed in 2019. The numbers are stellar when considering the impact of Covid-19 on the economy, business and the deal-making process in itself.

Indeed, global deal volumes took a major dent last year as a result. The Middle East also witnessed a turbulent first half of 2020, which was then offset by a significant rebound in the second half. Several factors fuelled the recovery – most notably public sector spending, business resilience, growing comfort levels with virtual deal making, and an imminent vaccine rollout.

Total volume of deals in the Middle East

Stalwart markets including the UAE and Egypt saw rising deal volumes when compared to 2019 – the latter clocking a mammoth 60% jump. Out of regional sync was Saudi Arabia, where M&A activity actually fell by more than 40% on the back of an energy sector slowdown. The UAE saw the most big ticket transactions, led by the Global Infrastructure Partners’ $10 billion acquisition of a 49% stake in the Abu Dhabi National Oil Company (ADNOC).

ADNOC featured again in a $5.5 billion sale of 49% of its real estate portfolio to a consortium led by Apollo Global Management, while a nearly $3 billion delisting of DP World from NASDAQ’s Dubai exchange made the UAE home to three of only six $1 billion plus deals in the Middle East through 2020.

For the rest, smaller transactions valued lower than $100 million made up the bulk of M&A activity across key markets – accounting for more than half of the total deal volume. According to PwC experts, the sector-wise concentration of these many small transactions is a reflection of pandemic-induced conditions.

Domestic transaction volume across the UAE, Egypt and Saudi Arabia

In focus here is a spike in the rapidly transforming consumer market, while healthcare and technology are also starting to gain investor attention. The numbers are subdued for now, mainly owing to lengthened transaction times and delayed completions. 

According to PwC Middle East deals market leader Romil Radia, 2021 is already showing more focus in these transitioning sectors, as businesses look to repivot in line with life after the pandemic. “We are living in a new normal where businesses are having to rethink their strategies and navigate the uncertainty.”

“Whilst it remains essential for deal makers to factor in the current, uncertain environment, companies and investors should also view M&A as an opportunity to achieve their strategic objectives and it may be the best or fastest way to fill in gaps, for example, in technologies or resources.”

Trends for the near future

Judging by deal activity and composition, many in the region have come to this realisation. And the next year or two will only see this restructuring drive intensify – driven by myriad trends and actors in the region’s M&A ecosystem. Deals partner at PwC Middle East Ovais Chhotani laid out some of these forces.

Number of deals completed by sector

“Going forward, expected consolidation across a range of sectors including those hit hardest by Covid-19, reallocation of capital across both public and private sectors, restructuring and/or digital transformation of certain businesses which has become critical in the wake of Covid-19 are what we see as some of the key themes that will shape the Middle East M&A landscape over the nearer term.”

Government involvement will likely be strong as always in the Middle East. Public-private partnerships will be leveraged to cover the infrastructure funding gap, while sovereign wealth funds and state coffers will back strategic deals. The public sector will also see its own share of transformation, with consolidation in favour of efficiency and cost optimisation.

In the private sector, the two overriding themes are supply chain localisation to mitigate risks; and digitalisation to match a new paradigm of remote working, vibrant e-commerce and the growing need for cyber security. With the corporate agenda packed and a vaccine on the horizon, PwC expects deal activity in the Middle East to continue its upward climb through this year.