Green deals jump as Middle East returns to pre-Covid levels

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• Mergers and acquisitions increasing in Mena countries
• Green deals are hot as sustainability transactions soar  

Mergers and acquisitions activity in the Middle East has returned to pre-pandemic levels, with green deals on the increase.

A Boston Consulting Group analysis shows the Middle East recording 283 deals valued at $23.8 billion in the first three quarters of 2022, an increase of 16 percent compared to the same period last year.

The report, published on Monday, also forecasts that environmental considerations will motivate an increasing number of deals, despite unfavourable macro-economic conditions, with green M&A deals increasing from 5 percent in 2020 to 10.3 percent in 2021.

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“Green deals are hot in the region. Soaring sustainability transactions in the Middle East are a clear outcome of established national transformation programmes seeking out diverse economic outputs for countries on their path to net zero,” said Ihab Khalil, managing director and senior partner, BCG. 

“As the region continues grounding itself as a hub where collaboration and diversification can bear fruit, so will green mergers and acquisitions.”

Anil Menon, head of Mena M&A and equity capital markets leader at EY, added: “The increasing M&A activity is 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, Oman and Qatar.

“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.”

BCG’s analysis revealed a clear upward trend in green-related deals over the past decade, with the strongest acceleration occurring in 2021 when Middle East deal volumes nearly doubled, following two softer years for broader M&A activity.

Green M&A has been growing particularly quickly in industries that are at the forefront of the energy transition and in emerging markets, with the Middle East showing the highest level of green activity globally. 

Over the past 10 years the energy and utilities industry had the highest share of green M&A and the largest increase, showing a 98 percent increase in deals from 2020-2021, contributing to 10 percent of M&A deals in the Middle East in 2021. 

Asia-Pacific, led by China, was the second-most active region, with a green deal share of approximately 8 percent in 2021.

BCG’s analysis revealed that despite the substantial premium they often command, green deals globally generally create more value than non-green deals upon announcement and over the ensuing two years.

It calculated a median cumulative abnormal return for three-day periods before and after a deal announcement of  1 percent for environmental-related transactions compared to zero percent for non-green deals.

“Though the Middle East is seeking out net zero solutions to power its economy, it is not letting go of the stream of energy and power,” said Ronald Maalouf, managing director and Partner, BCG. 

“On the contrary, increasing ventures in hydrogen will surely position the region not only as a reliable sustainable centre of energy supply but as a leader in that segment capable of powering an even greater number of mergers and acquisitions across the board.”

He added: “With Cop28 scheduled in the UAE, we expect more attention to be drawn to the region’s green portfolio to spearhead global sustainable development goals to success.”