Middle East a rare 'sweet spot' for mergers and acquisitions

21 March 2023 Consultancy-me.com 5 min. read
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At a time when dealmaking activity is cooling down across most corners of the globe, the scene in the Middle is hotter than ever – with little signs of slowdown, according to PwC’s latest M&A industry report.

Following a record-breaking 2021, when merger and acquisition (M&A) deal value hit an unparalleled $5.9 trillion worldwide according to Bain & Company analysis, 2022 was always set to face an uphill – arguably impossible – task in the wake of economic and geopolitical developments.

Facing the triple headwinds of soaring inflation, rising interest rates and looming recessionary fears, last year ultimately saw a significant drop in M&A deal value, down to $3.8 trillion – roughly on par with recent pre-pandemic levels.

Global M&A deal value fell by 36% in 2022

Amid heightened caution among both strategics as well as financials, buyers are holding back on their risky or non-strategic deals, with the broad outlook for 2023 pretty bearish.

How different is the sentiment in the Middle East. Last year, the region bucked the global trend to enjoy its best dealmaking year on record, found PwC’s ‘2023 TransAct Middle East’ report, with 632 deals closed as opposed to 624 the year previous and more than double the respective total of 2019.

Middle East M&A Deal Volumes (2018-2022)

Notably, the Middle East saw a series of $1 billion-plus transactions across different industries, including Saudi Aramco’s $15.5 billion sale of a 49% stake in its Aramco Gas Co to a consortium led by BlackRock and Hassana Investment, the $8.5 billion deal between Ahli United Bank and Kuwait Finance House, and NMC’s $2.3 billion deal (for 53% of assets) with creditors. DP World meanwhile was involved in two $1 billion-plus transactions.

“The Middle East is proving a remarkable exception to the global slowdown in M&A activity,” said Romil Radia, Deals Markets Leader at PwC in the Middle East, “as favourable regional dynamics such as elevated oil prices and increased fiscal discipline contributed to greater economic flexibility and relatively higher growth. This ‘Gulf exceptionalism’ allowed M&A activity to maintain an upward trajectory across the region in 2022.”

Breaking the numbers down

Most Middle East merger & acquisition activity in 2022 was concentrated in the UAE, Saudi Arabia and Egypt, which collectively recorded 563 deals, or 89% of the region’s total deal volume.

Deal Volumes by Country (2022)

While Egypt led in terms of aggregate deal volume, the UAE led when it came to fundraising rounds in 2022. “Particularly notable was a series of digital acquisitions by telco and successful fundraising rounds for fintech companies, confirming growing investor interest in the Middle East’s technology sector,” said Zubin Chiba, Corporate Finance Leader at PwC in the Middle East.

Middle East Fundraising Deal Volumes (2018-2022)

In line with previous years, acquisitions dominated the Middle East’s M&A landscape last year. 586 acquisitions were completed in 2022, compared with 565 in 2021 and 376 in 2020.

Middle East Deal Volumes by Transaction Type

Radia: “The preference for acquisitions over mergers may be due to factors such as quicker transaction processes and buyers preferring the acquisition of scale or capabilities rather than seeking cost-driven mergers.”

Intra-regional transactions continued to lead deal volume, accounting for 65% of the total number of transactions, with investors such as private equity and sovereign wealth funds the main drivers of deal activity.

In 2022, a total of 152 cross-border inbound deals involving players outside the Middle East were completed, compared with 131 the year previous.

Inbound Cross-border Deals (2018-2022)

The outlook

Based on its research, PwC’s experts expect the Middle East to yet again outperform other markets in 2023, describing the region as a “rare sweet spot” for deals in uncertain times.

Radia: “The Middle East is certainly not immune to the economic headwinds affecting M&A worldwide, but the mood in the region is more optimistic than most global markets. In its favour, the region has financial resources available for deals, which is supporting outbound and cross-border transactions. There is also enormous potential around the energy transition, and a strong focus on tech and digital acquisitions as transformation programmes continue across the region.”

Reflecting on the outlook in the Saudi deal market, Imad Matar, Transaction Services Leader at PwC in the Middle East, said: “We expect a further pick up in M&A activity in Saudi Arabia during 2023. The sovereign Public Investment Fund will continue to spearhead outbound Saudi cross-border transactions, as well as fuel domestic deals.”