Analysis Banking & Finance Gulf mid-market mergers flourish as economy matures By Matt Smith February 3, 2025, 3:15 PM Shutterstock Western investors are increasingly looking to the Gulf for mergers and acquisitions, rather than Middle Eastern businesses only investing outward Inbound Gulf M&A rising Companies seeking growth US backers more comfortable International private equity companies are increasingly keen to buy mid-sized Gulf companies as the regional economy matures and GDP growth elsewhere falters, a corporate adviser tells AGBI. Other factors, such as Gulf family conglomerates seeking to narrow their business focus, are also spurring a rise in mergers and acquisitions, says James Jarvis, a director at Lumina Capital Advisers in Dubai. “Ten years ago, capital flows were largely outward focused, whereas today flows are very much two-way as global firms seek to understand, access and grow across GCC markets,” Jarvis says. “This has created a global influx of innovation, skills and talent into the region and a similar increase in M&A activity.” Although outward investment deals – such as Abu Dhabi state oil company Adnoc’s $16 billion takeover of German plastics maker Covestro – tend to grab the headlines, it is the more mid-market $30 million to $250 million regional acquisitions that are growing the fastest, according to Lumina. The so-called bulge bracket institutions – the world’s largest investment banks such as Goldman Sachs and Citigroup – consider these deals to be too small for them, leaving the field clearer for smaller companies such as Lumina. “More deals are happening in this space than ever before,” says Jarvis. In the first nine months of 2024, there were 522 M&A deals involving entities from the Middle East and North Africa, up 9 percent versus the prior-year period, according to consultants EY. The number of inbound deals rose 20 percent year on year to 127. Their combined value was $10.4 billion, or an average of $82 million per deal. A triple trend Three factors are the main causes of these trends, says Jarvis. As the GCC economy matures, venture capital-funded businesses are transitioning to become more stable, cash-generative businesses that need additional funding for their next stage of development. “This has created a wider range of attractive private equity investment opportunities,” says Jarvis. Many family conglomerates are also engaged in succession planning. This often involves selling subsidiaries peripheral to their core business and buying companies that are more central to it, explains Jarvis. Another related trend is the rise of regional champions in particular industries, whose growth often aligns with strategic government objectives. M&A are a prime means for such entities to achieve greater scale and expertise. SuppliedJames Jarvis, director at Lumina: ‘US businesses are becoming more comfortable with the region’ International private equity firms, which are under pressure to meet their investment objectives, have started to view the Middle East as a source of deals, rather than solely a region to find investors for their funds, says Jarvis. Similarly, stagnating growth elsewhere has boosted the allure of the Middle East’s more dynamic economies for corporations in developed markets. “Unlisted, mid-market companies are typically their entry point, be it as a direct acquisition, joint venture or strategic alliance,” says Jarvis. “They need a base level of scale for their targets but also a runway to grow and further expand. We’ve seen some really encouraging trends on deals and expect strong mid-market activity to continue in 2025.” Historically, Gulf-based acquirers funded deals via their own balance sheet but now there is increasing interest in funding deals through debt, says Jarvis. International buyers will tend to use external financing, including traditional debt, debt funds or private equity, he says. The Middle East market is becoming more aligned with the model found in other regions. Kuwait ‘ready to go ahead with merger of state oil companies’ Saudi developer Umm Al Qura to float on Tadawul Adia-backed bidders close in on Malaysia Airports buy-out In terms of sectors, industrial and business services are among the most in-demand among prospective investors. Food and beverage producers and consumer-related businesses also attract considerable interest as part of a wider bet on industries that benefit from the Gulf’s growing population and expanding economies, says Jarvis. The business services industry is home to an increasing number of acquisitions as a result of the introduction of corporate tax and more comprehensive compliance regulations in much of the Gulf. Recent deals include US marketer Stagwell’s December acquisition of Dubai digital communications agency Create Group and New York corporate governance advisor ACA’s purchase of Effecta Compliance, which has offices in Dubai, Abu Dhabi and London. Stagwell’s takeover is emblematic of “how US businesses are becoming more comfortable with the region, facilitating more deals here, a trend which we expect to continue in 2025”, adds Jarvis.