Strong regional deal growth underpinned by wealth funds

The Saudi Public Investment Fund accounted for the biggest regional deal of the year when it acquired a majority stake in four local construction companies

The headwinds of inflation, higher financing costs and weak growth have weighed on global transactions markets this year.

Yet the Middle Eastern markets have remained resilient, due to solid economic fundamentals and supportive government policies. Expectations for 2024 are positive, as indicated in our 2024 TransAct Middle East report. 

Against a backdrop of weak global deal activity, the relative buoyancy of the market in Saudi Arabia is notable.

Oil price volatility and decreased revenues following Opec+ production cuts have barely dented confidence, thanks largely to continuing government efforts to diversify and modernise the economy in line with the goals of Vision 2030. 

Expanded activity has been seen in the non-oil private sectors, across the infrastructure, industrial manufacturing, and clean technology industries. 

The Saudi Public Investment Fund (PIF) accounted for the biggest regional deal of the year, when it acquired a majority stake in four local construction companies (Nesma, Almabani, El Seif and Al Bawani) in a $1.3 billion deal in February. 

As elsewhere in the region, the kingdom’s sovereign wealth fund has remained at the forefront of government economic diversification initiatives in 2023, driving deal activity in the wider region and beyond.

A PIF-led consortium has also acquired an 80 percent majority stake in Zain KSA’s tower infrastructure for a value of $807 million. 

Saudi acquirers accounted for three of the top five regional deals of 2023, with SNB Capital acquiring a 20 percent stake in Tamara, a leading buy-now-pay-later business in December. 

Beyond the border

Across the region there has been an increase in cross-border deals by sovereign wealth funds, with more outbound cross-border deals (248) than inbound cross-border and intra-regional deals, as the funds seek to pursue an economic diversification agenda in both sectoral and geographic terms. 

Middle East sovereign wealth funds and government-related entities are investing to reduce dependence on hydrocarbons. Sectors including technology transformation, artificial intelligence, fintech, healthcare, renewable energy and agribusiness have all generated substantial deal interest, although not all of it translated into completed deals in 2023. 

IPO surge

The regional IPO market has also proved resilient, with 47 IPOs which generated $10.7 billion, according to PwC’s GCC 2023 IPO+ Watch. We have seen that listing activity was primarily concentrated in Saudi Arabia and UAE, with Saudi Arabia recording 36 IPOs, the highest in the region.

In the energy and utilities sector, an IPO by Saudi Arabia’s Ades Holding Company, an oil drilling company, raised $1.2 billion, followed by the SAL Saudi Logistics Services Company IPO which raised $700 million. 

In 2024, the MBC Group became the first new listing in the Kingdom’s Tadawul All Share Index and priced its initial public offering (IPO) at the top of the previously announced range.

• PIF and BlackRock launch $5bn Saudi capital markets platform
• Mubadala to invest $13.5bn in sustainable biofuels in Brazil
• Acwa Power secures $3bn for Saudi renewable projects

Potential listings of Saudi fintech start-up Tamara (which has reached a valuation of $1 billion in its latest equity funding round after raising $340 million) and Tabby (valued at $1.5 billion in a pre-IPO fundraise) are also likely to continue to strengthen the pipeline. 

This indicates a robust line of listings for 2024 and we expect the positive momentum to continue as the government privatises state assets and encourages private sector companies to list in a bid to attract investment, push reforms and move away from dependence on fossil fuels. 

Diversification is supporting M&A

By sector, regional sovereign wealth funds and government-related entities have significantly diversified their resources investment portfolios, with a focus on infrastructure and the renewable energy sectors. 

In the region, Saudi Arabia and the UAE have emerged as leaders in the clean energy sector and are leveraging their expertise in hydrocarbons, while exploring potential advantages in renewables to drive the shift towards cleaner energy sources. 

In the conventional oil and gas sector, there is a noticeable uptick in engagement in downstream sectors such as oil refining and retail, as demonstrated by Saudi Aramco’s purchase of a 10 percent stake in China’s Rongsheng Petrochemical Company. 

In financial services there has been a surge of deals in 2023, with fintech and buy-now-pay-later companies gaining ground. The healthcare sector in Saudi has also experienced significant growth in 2023, driven by an ageing population, a rise in chronic diseases and the rollout of mandatory insurance.

Notable acquisitions have included Gulf Islamic Investments’ injection of USD160m into Saudi Arabia’s Abeer Medical company and an IPO from Saudi Arabia’s Fakeeh Care.