Inbound and cross-border M&A driving up deals in Middle East

Despite economic headwinds worldwide, the Middle East’s M&A scene is set to enjoy another robust year, driven by both domestic deals and inbound activity concentrated in resilient sectors such as energy, infrastructure and technology, according to a new report from Lumina Capital Advisers.

For its study, Lumina Capital Advisers (a London and Dubai based corporate finance firm and matchmaker) surveyed the views of dealmakers both in and outside the Middle East, gauging their appetite for transactions in the region.

The survey found that around 40% of international dealmakers (those based outside the Middle East) are eyeing closing a deal in the Middle East, with the UAE and Saudi Arabia their hotspot targets. Notably, around 80% of this group had already closed a deal in the region in the last twelve months.

“We've observed a remarkable 112% surge in inbound interest since our last survey in 2019, underscoring the enduring strength and appeal of the UAE and Saudi Arabia as prime destinations for regional business interests,” said Andrew Nichol, partner at Lumina Capital Advisers.

Meanwhile, around 19% of the Middle East based dealmakers are looking at outbound activity. These dealmakers work at corporates, private equity, and sovereign wealth funds.

Cross-border activity is also on the up in the region itself, with around 70% of investors stating they are transacting cross-border within the GCC.

“Many investors are eyeing the UAE as a regional base, focusing on specific sectors in Saudi Arabia or using it as a regional platform to ‘buy and build’ out into the wider region. This strategic positioning highlights the interconnectedness and complementary strengths of these two pivotal markets in fostering the growth and development of regional economies,” said Nichol.

In Saudi Arabia, a focal point for investments is the infrastructure landscape, where a $900 billion spending plan is set to facilitate the development of megacities. Moreover, the healthcare and education sectors are experiencing significant attention due to population growth goals, the ongoing development of healthcare systems and infrastructure, the import of expertise, operational excellence, and the fostering of international partnerships.

“Obviously, there is also an emphasis on digital transformation, with the integration of data centres, cybersecurity, and artificial intelligence proving critical to developing advanced infrastructure and smart services,” said Nichol.

In the UAE, sectors in high demand include infrastructure, construction, and contracting. “The UAE also plays a crucial role in sculpting the regional landscape, actively forming regional champions through consolidation acquisition strategies executed at a federal level,” Nichol noted.

Not all deals are majority ownership acquisitions. “The trend towards joint venturing and partnering is gaining momentum, driven by the scale and complexity of evolving projects.”

A vast majority of the deals are concentrated in the lower mid-market (falling below $250 million), with equity the predominant choice for funding.

“Debt is also a notable segment, with 44% of investors utilising it as a significant source of transaction funding. However, this is set against a backdrop where larger deal sizes are predominantly the domain of sovereign wealth funds and quasi-government entities, which have greater access to borrowings,” Nichol explained.

According to an earlier report from EY, M&A deal value in the MENA region hit $44 billion in the first half of 2023, slightly up on the second half of 2022. Globally, both deal volume and value slipped downwards amid a more subdued investment landscape.