Analysis Banking & Finance Oman banks ink deal as Mena mergers defy global headwinds By Andy Sambidge November 16, 2022 Sohar International Bank All assets and liabilities of HSBC Oman will be transferred to Sohar International Domestic deals have driven M&A activity so far this yearGovernment-related entities were involved in 38% of dealsThe UAE led activity with 155 deals worth $17.2bn; Egypt was second HSBC Bank Oman and local rival Sohar International Bank have entered into a binding agreement to consolidate operations as merger and acquisition activity in the Middle East and North Africa (Mena) continues to defy global headwinds. The two lenders said on Wednesday that all assets and liabilities of HSBC Oman will be transferred to Sohar International, without disclosing the deal value. On completion of a merger, HSBC Oman will cease to exist as a legal entity and its shares will be cancelled, the banks said. It is the latest deal in the region which recorded 524 deals worth $55.2 billion during the first nine months of 2022, according to the latest EY Mena M&A Insights report, published on Monday. Less traditional merger and acquisition (M&A) markets such as Egypt, Morocco, Qatar and Oman helped bolster the region’s performance this year, analysts said. PIF and BlackRock to explore Middle East infrastructure projectsIHC sets out plan to create Mena’s largest tech company Rising inflationary pressures, dampening economic demand and global market disruptions resulted in moderate growth in deal activity of 6 percent year-on-year, while deal value slipped by 23 percent over the same period last year. Domestic deals were the main driver of activity in the region, contributing just over half of total M&A deal volume and a third of deal value over the nine-month period. M&A activity involving private equity or sovereign wealth funds accounted for 35 percent and 38 percent of the total deal volume and value respectively. Deals involving government-related entities totalled $21 billion, accounting for 38 percent of the total disclosed deal value. Dubai-based Brad Watson, Mena strategy and transactions leader at EY, said: “Although we are living in uncertain economic times, the Mena region continues to record higher M&A activity, fuelled by expected economic growth through higher oil prices and an acceleration in business-friendly reforms. “Technology is driving a large number of deals, reflecting the rising digital transformation across industries in the region.” The top five Mena countries by deal value were the UAE, Egypt, Saudi Arabia, Morocco and Oman. CountryDeals volume (Jan-Oct 2022)Deals value (Jan-Oct 2022)UAE155$17.2 billionEgypt99$3.9 billionSaudi Arabia58$3.4 billionMorocco22$1.9 billionOman10$700 million “What is interesting from these latest results is the increasing M&A activity, not just emanating from traditional markets such as the UAE and Saudi Arabia, but also from other countries across the Mena region, namely Egypt, Morocco, Qatar and Oman,” said Kuwait-based Anil Menon, head of Mena M&A and equity capital markets leader at EY. “Higher crude oil prices, combined with favourable regional government initiatives in attracting investments to the region and Mena investors looking for futuristic investment opportunities in foreign markets, will be the major drivers of such activity in the region going forward.” According to EY, domestic M&A activity saw a slight dip of 3 percent in the year to September, with 268 deals signed, compared to 275 deals for the corresponding period last year. The value of deals also almost halved, amounting to $18 billion, compared to $34.6 billion in the opening nine months of 2021. Excluding the deal involving the acquisition of utilities and power assets of Aramco by Air Products and Chemicals Inc ($12 billion), deal value fell by 20 percent in 2022. Egypt, meanwhile, witnessed a surge of 37 percent in domestic activity in terms of deal volume. The Egyptian government’s decision to sell several state-owned industries to help its struggling economy has attracted Gulf investors into the region. EY also said an acceleration in business-friendly reforms, rising oil prices and the easing of government travel restrictions resulted in higher inbound deal volume in the Mena region, with 119 deals compared to 105 deals in the corresponding period in 2021. The UAE continued to be the favoured investment destination – 62 deals worth $7.4 billion – supported by the reforms to strengthen its business environment, attract foreign investment and incentivise companies to set up or expand their operations. Canada’s Caisse de Dépôt et Placement du Québec bought a stake in Jebel Ali Free Zone The technology sector recorded the highest deal activity in terms of volume. Out of 37 technology deals, 23 were flowing into the UAE, reflecting its appetite for digital transformation. US businesses led the foreign direct investment deal activity in the region, in terms of volume, taking part in around 30 percent of inbound activity with a particular focus on technology-related investments. Canada, however, took the top spot in value with four deals worth $5.7 billion. This was largely driven by the $5 billion deal signed in June by Caisse de Dépôt et Placement du Québec to acquire a 22 percent stake in Jebel Ali Free Zone, a 22 percent stake in National Industries Park and a 22 percent stake in Jebel Ali Port. In the first nine months of 2022, Mena also recorded 137 outbound deals, which amounted to $27.2 billion. This compared to 113 deals totalling $11.9 billion in the same period of 2021. The UAE had the highest number of outbound deals, led by technology, professional firms and services and real estate, which contributed to 43 percent of the total outbound deal volume. It also had the largest outbound deal, signed in May, as Emirates Telecommunications Group Company acquired a 9.8 percent stake in the UK’s Vodafone Group in a deal worth $4.4 billion.