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Merger activity tipped to rebound in Middle East

Investors at the Dubai Financial Market. Executives believe 'international strategic' buyers will be the most active in the Middle East this year Reuters/Christopher Pike
Investors at the Dubai Financial Market. Executives believe 'international strategic' buyers will be the most active in the Middle East this year
  • M&A executives surveyed
  • 49% predict increase in deals
  • Geopolitics tops risk list

Mergers and acquisitions executives are expecting activity in the Middle East to rebound this year, a survey has found.

M&A deals slumped last year as rising borrowing costs, global recessionary fears and geopolitical uncertainty made prospective buyers more wary. 

In the first half of 2023, there were 318 deals worth a combined $43.8 billion in the Middle East and North Africa, according to consultancy EY. Aggregate deal value was nearly flat, but the number of deals was 14 percent down on the previous year.

About 200 senior figures in the M&A industry have been surveyed by law firm Norton Rose Fulbright and Mergermarket for a report released this week – and are more optimistic for the year ahead.

About 37 percent said merger activity in the Middle East would “increase somewhat” in 2024, while 12 percent predicted it would “increase significantly”. 

Another 22 percent of respondents said activity would remain broadly the same, and 29 percent thought it would decrease somewhat or significantly.

“We are still seeing uncertainty in the financing markets, but I am hopeful that 2024 will be a better market,” said Raj Karia, Norton Rose Fulbright’s head of corporate, M&A and securities in Europe, Middle East and Asia, in the report.

In terms of trends that will drive M&A activity in the Middle East, private equity’s “dry powder” – or cash reserves – will be the most prominent, according to the survey respondents.

This is followed by supply chain disruption, new products and services, industry consolidation, digital transformation, sale of non-core assets, distressed opportunities and falling valuations.

The M&A executives were also asked to cite the two types of buyers likely to be most active. About 53 percent said “international strategic” acquirers and 35 percent said domestic private equity. 

“Domestic strategic” purchasers and domestic pension or sovereign wealth funds were each cited by 32 percent of respondents. International private equity and international pension or sovereign wealth funds polled 28 and 20 percent, respectively.

M&A deals worth $100 million to $250 million are expected to be the most common, followed by acquisitions for $251 million to $500 million.

Geopolitical risk was cited as the biggest obstacle to completing M&A deals in the region. Second was agreeing terms, while overcoming differences in valuations between prospective buyers and sellers was third.

“The ongoing conflicts and further geopolitical tensions in Eastern Europe and the Middle East, coupled with upcoming elections in a number of key countries including the US, make it difficult to predict the level of cross-border [global] M&A activity for 2024,” said Ayşe Yüksel Mahfoud, global head of corporate, M&A and securities at Norton Rose Fulbright.

About 39 percent said M&A-related financing conditions in the Middle East would be somewhat easier this year than in 2023, while 19 percent predicted they would remain broadly the same. A further 19 percent thought they would become significantly easier.

A report this week by Lumina Capital Advisers, which focuses on investments between the Middle East and the United Kingdom, said there had been “resilience” in M&A and joint-venture transactions. These typically fall “in the sweet spot” of $30 million to $200 million, it said.

The report also noted that although M&A and private equity deals in the Middle East in 2023 fell by about 15 percent year-on-year, this decline was less than the 27 percent annual drop in global M&A.

“As [Middle East] market participants become more sophisticated in how they execute M&A strategies, and companies consolidate their core markets, the volume of deals will continue to grow into 2024,” the Lumina report states. 

“While PE deal volumes still lag, largely due to valuation/funding costs/deal scarcity issues, we expect deal volumes to rise rapidly in 2024 as these trends reverse.”

The report also predicts “new, well-funded” participants in the Middle East’s private equity and private credit markets “predicate an increase in sophisticated, institutionalised investing in 2024”.

“With regional funds being raised from domestic, international and sovereign wealth fund participants, the quality and volume of private equity and private credit deals is on the rise,” the report states, predicting private equity and private credit will replace venture capital as the main source of growth capital funding in 2024.

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