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MENA: The Middle East and North Africa (MENA) region witnessed a total of 318 mergers and acquisition (M&A) deals amounting to $43.8 billion, according to a new study.

“The GCC region accounted for the majority of 254 deals valued at $42.5 billion. Compared with the first half of 2022, deal volume during this period was down by 14 percent, while deal value saw a slight increase of 0.4 percent,” according to the EY MENA M&A Insights H1 2023 update.

The M&A market in the first six months of the year was consistent with the trends observed in the second half of 2022. While deals continued notwithstanding the dampened economic outlook, high-interest rates, recession fears, inflationary environment, and geopolitical tensions, deal-makers seemed to be adopting a cautious approach given the uncertain market conditions, the report further added.

Sovereign wealth funds (SWFs), such as Abu Dhabi Investment Authority (ADIA) and Mubadala from the United Arab Emirates (UAE) and the Public Investment Fund (PIF) from the Kingdom of Saudi Arabia (KSA), continued to lead the deal activity in the region to support their countries’ economic strategies.

Cross-border deals accounted for 57 percent and 85 percent of the total deal volume and value respectively, becoming more popular among growth-focused companies. Outbound deals represented 32 percent of the total M&A deal volume and 70 percent of the value.

Deals involving government-related entities (GREs) amounted to a total value of $29.9 billion, accounting for 68 percent of the total disclosed deal value and 19 percent of the deal volume. Meanwhile, transactions involving private equity (PE) or SWFs constituted around 23 percent and 53 percent of the total deal volume and value respectively, the new report shows.

In terms of sectors, technology contributed $15 billion to the total deal volume, followed by chemicals with $11.9 billion and, offset by a wide gap, provider care with $3.3 billion.

The UAE dominated the lists of target countries as well as bidder countries by value last year, followed by KSA and Kuwait in both rankings. Egypt and Oman also made it among the top five bidder countries, while Bahrain and Qatar made an appearance among the top five target countries by value.

As before, Canada was the largest acquiring country outside the region by volume with transactions worth a total of US$2.6b; however, France marked the highest number of inbound Middle East and North Africa (MENA) deals with 13 in the first half of 2023.
Brad Watson, EY Mena Strategy and Transactions Leader said: “Inflation has fallen in most economies in recent months due to the downturn in energy prices, even though food and services prices have continued to rise rapidly. Dealmaking got off to a slow start in 2023 with rising interest rates, persistent inflation, and economic uncertainty weighing heavily on M&A activity.”

“Despite the marked drops witnessed across the board, the UAE remained the favored investment destination in the first half of the year, driven by government reforms that continue to attract investment into the country,” he added.

Top 10 M&As

Ten of the region’s largest M&As were concentrated in the UAE and Saudi Arabia. In March 2023, US asset management firm Apollo Global Management and ADIA announced their plan to acquire UAE-based Univar Solutions for $8.2 billion. Moreover, in the same month, Blackstone along with ADIA signed a definitive agreement to acquire the UAE’s Cvent Holding for $4.7 billion. In April 2023, PIF-owned Savvy Games Group announced its plan to acquire a 100 percent stake in the US mobile games developer Scopely for $4.9 billion.

Domestic Deals on the Decline

Domestic M&A activity dropped by 24 percent in the first half of 2023 with 138 deals, compared with 181 deals over the same period in 2022. The disclosed deal value experienced a sharp dip of 53 percent, amounting to $6.7 billion, compared with $14.2 billion in the first half of 2022.

The technology sector witnessed the highest transaction activity in the domestic market with 33 deals by volume and $880 million by disclosed value, compared with 55 deals by volume and $584 million by disclosed value over the same period last year. However, the largest domestic deal in the first half of 2023 – PIF’s acquisition of Nesma & Partners Construction for $1.3 billion – took place in the real estate sector.

Rising Oil Prices

The first half of 2023 recorded a drop in inbound deals – 77 by volume and $6.5 billion by disclosed value versus 94 deals worth $9.8 billion in the first half of 2022, representing an 18 percent dip in terms of volume and a 34 percent decrease in terms of value.

The three oil and gas inbound deals completed during this period show that the rising oil prices in 2022 had a significant impact on this year’s activity. Only one of these deals had a disclosed value of $1.6 billion, which contributed to 97 percent of the disclosed inbound deal value.

Anil Menon, EY Mena Head of M&A and Equity Capital Markets Leader, said: “In line with historical trends, the technology sector witnessed the highest inbound and domestic deal activity in H1 2023. During this period, we saw a tremendous increase in deal value, contributed by two large deals. Investor interest focused mainly on cybersecurity, cloud computing, fintech, and e-commerce, clearly indicating the segments that are poised to shape the future of the industry.”