Bain & Company: Middle East M&A market to recover from 2023 dip

The total value of M&A deals in the Middle East deals dipped by around 3% last year, compared to a 15% drop globally, according to research from Bain & Company. A rebound is anticipated for 2024.

The global value of mergers and acquisitions closed has fallen from its record-breaking $6 trillion level in 2021 to $3.2 trillion in 2023, the lowest level in a decade, said strategy consultancy Bain & Company in its latest annual report.

Across markets, dealmakers grappled with high interest rates, regulatory scrutiny, and mixed macroeconomic signals meaning they had to be more selective in their deals. The gap between buyers and sellers on valuations was another major obstacle to transactions.

The Middle East’s dealmaking scene faced its first drop since 2020, although deal value and volume ended the year roughly on par with the year previous.

Notably, sovereign wealth funds (SWFs), large investment funds owned by governments, represented 86% of deal value in the Gulf Cooperation Council (GCC).

Energy transition

A growing number of SWF deals are aimed at aimed at accelerating the energy transition, in line with net zero targets of country roadmaps. So far, the UAE and Oman pledged to reach net zero emissions by 2050, and Saudi Arabia, Bahrain, and Kuwait by 2060. 

This energy transition push is reflected in M&A activity. Major SWFs such as the Public Investment Fund and Mubadala have committed to net zero targets by 2050. In addition to working to decarbonize existing portfolios, those funds are investing in green assets and in technologies that support decarbonization.

Elif Koc, partner at Bain & Company, said: “The Middle East is undergoing a significant shift towards accelerating the energy transition, with a growing emphasis on clean energy investments and ambitious net zero targets. Through strategic investments, sovereign wealth funds are leading the charge in reshaping the economic future of the Middle East, diversifying beyond oil and laying the groundwork for sustainable growth and prosperity.”

Focus on Asia

Another big emerging trend noted by Bain & Company’s research: the increasing exposure to Asia. During the first three quarters of 2023, SWFs invested a total of $8.5 billion in increasing their ties to Asia, nearly a 60% rise over the year previous. The activity was spread across Asia, including China, India, South Korea, Japan, and Singapore. 

“The investments into Asia are particularly aimed at revitalizing manufacturing and fostering innovation within the Middle East,” said Gregory Garnier, leader of Bain & Company’s Private Equity & Sovereign Wealth Fund practice in the Middle East.

For example, PIF and South Korean automaker Hyundai recently entered a joint venture valued at more than $500 million that will build a new manufacturing plant in Saudi Arabia. The localization of Hyundai’s vehicles is aimed at accelerating the development of the country’s automotive and mobility ecosystem and attracting further investments to the sector and the wider economy.

The outlook

Looking ahead in 2024, the Bain & Company study notes that deal activity will be lifted by the closing of assets that didn’t come to market last year. 

“In 2024, buyers have their eyes on a growing backlog of deals. A need for liquidity will motivate some sellers, while others will divest assets while reshaping their portfolios. As interest rates stabilize, we expect the logjam in M&A markets will break. When it does, competition for assets will be significant,” said Les Baird, partner and global head of Bain & Company’s M&A & Divestitures practice.

In the Middle East, Garnier said a similar pattern will unfold, with SWFs once again at the forefront of the landscape. “Throughout history, economic downturns and periods of upheaval have consistently given rise to resilient competitors who have capitalized on the chaos to gain ground in the market. It is highly likely that last year’s downturn will follow this pattern, leading to an anticipated increase in dealmaking activity in 2024, driven by the abundance of funds.”

“However, this upward trend will not be without its challenges. In the current regulatory landscape, the approval processes for contested deals are becoming increasingly prolonged and unpredictable, necessitating that companies embarking on significant, transformative mergers and acquisitions demonstrate unwavering determination and resilience.”