Technology continues to underlie deal activity across all major sectors in the Middle East, such as retail and consumer markets, e-commerce, payments, healthcare, and industrial manufacturing. This has also been bolstered by the sector's relatively buyer-friendly valuation environment, which has been a significant draw to local and international corporates seeking to expand their technology operations. Deal activity has cut across all company sizes – from start-ups to conglomerates – with fintech and e-commerce poised to emerge as stand-out growth sectors in upcoming months.
Despite the global economic slowdown, subdued oil prices and high inflation during the first half of this year, the Middle East continues to be an attractive hub for mergers and acquisitions.
Compared to other regions globally, 2023 began optimistically for the Middle East, with upbeat expectations about regional growth potential and business prospects. A highly motivated leadership across the GCC is the driving force behind the progress of long-term economic visions in the region, including the newly framed goals of moving towards net zero domestic emissions.
Cautious optimism, a more selective deal decision making
Amid a post-pandemic boom in the Middle East, bolstered by a strong pursuit of economic diversification initiatives - particularly in technology and infrastructure - the prevailing sentiment for this year has been one of cautious optimism.
Despite facing global macroeconomic uncertainty, reasonable levels of Merger & Acquisition (M&A) activity persisted during the first half of the year (H1-2023), with 186 completed deals in the Middle East. But this signals a 40% decrease in noted deal volumes compared to the same period last year as high interest rates, concerns about a potential recession, and inflationary pressures have culminated in an uncertain environment, further heightened by the downturn in oil prices in the first half of the year.
Consequently, investors were seen to be more selective in deal decision-making, with strategic buyers assessing valuations and potential returns closely, focusing on enhancing their positions in key sectors. That said, M&A-related activity on the ground across the region remains high, even though it may not be reflected in the volume of completed deals during the half-year period under review.
Sovereign Wealth Funds (SWFs) continue to lead deal activity, capitalising on more attractive valuations during global economic uncertainty to support their economic diversification initiatives. Cash-rich corporations are also coming to the fore of transactions, with an enhanced focus on integration synergies and value creation underlying deal motivation. Inorganic growth via acquisitions is commonplace among strategic buyers looking to fast-track market share growth, extract synergies, and access capabilities or talent.
“The need for transformational change is greater than ever, as businesses are under increased pressure to demonstrate growth and innovation, along with shareholder returns. In the current environment, value creation will need to consider enterprise-wide transformation that may include changes in operating models, digital transformation and partnerships. Businesses that may not have time to achieve this, internally or organically, can pursue transformational acquisitions to acquire new capabilities. Deals that can bring about strategic transformations are becoming more relevant in the current market. We expect this to be an ongoing theme in the coming months.”
Romil Radia
Deals Markets Leader, PwC Middle East
In terms of deal size, the region has a greater inclination towards small (US$100mn or less) and mid-sized deals (US$100mn - US$500mn). These collectively accounted for 52% of disclosed value deals within the half-year period, which is no surprise given the reduced susceptibility of such deals to market fluctuations compared to larger transactions.
When it came to large deals valued at a minimum of US$500mn, the Middle East saw seven of these recorded in H1-2022 alone. Further, no megadeals - with values of at least US$5bn – were registered in the 2023 half-year period, compared to two such deals recorded during the same period last year. This highlights the global macro environment and financing challenges currently marking the dealmaking universe – in line with half-year global M&A trends.
Country highlights
Our analysis showed that during the first half of the year, the UAE, Saudi Arabia, and Egypt were at the centre of deal activity in the Middle East. The three countries collectively accounted for 154, or 83% of total deal volume in the region (Figure 1).
In line with global mid-year M&A patterns, these countries experienced a reduction in deal volume compared to H1-2022. The UAE and Saudi Arabia’s drop was relatively modest at 23% and 29% respectively, while Egypt witnessed the sharpest decrease of 70% during the same interval - notably with several deals remaining incomplete in 2022 and 2023. The rest of the region also saw a 22% decrease in deal activity, with deal volume falling between H1-2022 and H1-2023.
In the UAE, deal activity within industrial manufacturing and financial services persisted from the previous year, while technology-focused deals also gained prominence. A similar trend was seen in Saudi Arabia, with most of the recorded deals concentrated in the technology and industrial manufacturing sectors, while energy deals saw a slowdown. In fact, Saudi’s current construction boom has driven a surge in infrastructure-related deals, aimed at supporting its more than US$1tn project pipeline.
Meanwhile, Egypt’s sector diversification initiative, which started in 2023, continues at pace, with deals covering the technology, consumer markets, healthcare, financial services, and energy sectors. Its privatisation drive in the second quarter – a trend exacerbated by the devaluation of the Egyptian pound – is poised to see the sale of stakes in 32 state-owned enterprises valued at US$1.9bn. The pharmaceutical sector particularly appeals to foreign investors, owing to Egypt's industry prominence and government-led modernisation initiatives. In addition, the country’s strategic focus on renewable energy, particularly solar power and green hydrogen, positions it as a burgeoning hub for such projects.
Sector highlights
Consumer markets
Energy, utilities and resources
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Financial services
Industrial manufacturing and automotive
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Key themes
Looking ahead
Robust expansions of non-oil sectors in the Middle East have effectively offset the impact of decreased oil revenues, showcasing moderate growth in the second half of 2023 and ensuring a resilient GCC economy.
As seen in the latter part of H2-2022, ongoing efforts to attract increased foreign investments to key economies like Saudi Arabia and the UAE continue to propel capital market dynamics within the Middle East.
The momentum behind technology-related mergers and acquisitions is also expected to persist as businesses increasingly embrace digital transformation-centred strategies. In this evolving landscape, a number of programmes and initiatives have been launched to support tech start-ups within the region, such as the Dubai Chamber of Digital Economy Initiative, the Dubai Centre for Artificial Intelligence’s (DCAI) Accelerator Programmes, and Qatar Development Bank’s co-investment initiative for start-ups. These have created a thriving ecosystem of technology companies and start-ups, attracting ever-growing interest from foreign investors and further propelling deal and fund-raising activity within the technology sector.
In this context, it is worth mentioning that initial public offering (IPO) activity has maintained its momentum into H1-2023 with 22 IPOs generating US$5.3bn. Top IPOs in the region were driven by the oil and gas, food processing, technology, and pharmaceutical sectors. In the region, similar to end-2022, Saudi Arabia has witnessed the highest number of listings, 17 in total in the first six months of the year. The upcoming months will likely witness increased capital market activity in the region, supported by a vibrant IPO pipeline.
Meanwhile, the trend of cross-border transactions shows no signs of abating, contributing to the emergence of distinguished national and regional champions in different key sectors. Against a backdrop of uncertainty in the geopolitical landscape in the Middle East, there may be some headwinds as investors may adopt a cautious approach.
The priorities, drivers, and commitment to fiscal discipline and sustainability that governments in Saudi Arabia and the UAE have will continue to be of key importance, supporting the deals landscape. There may also be new business opportunities for outbound deals as a result of the growing interaction between South East Asia, China and certain Gulf nations, such as the UAE and Saudi Arabia.
Corporations, such as family offices and other conglomerates, are also expected to discover opportunities to deploy excess capital from non-core asset divestitures. Regardless of the chosen approach, the current landscape is conducive to mid-market deal-making on both an intra-regional and cross-border basis, making the Middle East a bright spot for M&A activities.
TransAct Middle East Report - Mid year updates
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