M&A M&A Landscape in the Middle East: Navigating Challenges and Seizing Opportunities

The Middle East has long been recognized as a dynamic and transformative region, and its M&A sector is no exception. Over the past years, the region has witnessed substantial M&A activity driven by a variety of factors, including robust economic growth, the push to diversify beyond hydrocarbons, and the emergence of sovereign wealth funds (SWFs) as key players in dealmaking.

In 2022, the Middle East’s M&A landscape experienced a deceleration, a phenomenon largely attributed to surging interest rates and growing economic unease. Despite the initial momentum in the first few months of the year, the region’s M&A transactions faced headwinds as the macroeconomic situation progressively worsened. One of the main challenges were the limited credit possibilities, with banks tightening their funding for leveraged buyouts due to rising interest rates and a general aversion to risk.

According to PwC Middle East’s “2023 TransAct Middle East” report, a total of 632 M&A deals were recorded in the Middle East in 2022. Notably, a significant portion of the deal volume 89% was concentrated in the United Arab Emirates (UAE), Saudi Arabia, and Egypt. The UAE and Saudi Arabia experienced the fastest year-on-year increase in deals, with volumes rising by 9% and 6% respectively. The UAE, in particular, saw deal activity in sectors such as consumer markets, technology, industrials, and financial services, aligning with the country’s diversification efforts.

The resilience of individual countries (UAE, Saudi Arabia) despite the general downturn in the region has been attributed to ‘Gulf exceptionalism’, a term used to describe the unique dynamics of countries such as Saudi Arabia, Qatar, Bahrain and the UAE, which has contributed to continued M&A activity. Favourable factors such as high oil prices, increased fiscal discipline and economic flexibility have played a role in sustaining increases/avoiding significant declines in M&A.

While the global M&A landscape faced challenges, the Middle East’s focus on technology, infrastructure, and energy transition created new opportunities for dealmaking. Cross-border M&A remained a notable trend, fostering the growth of national and regional champions. Additionally, the energy transition spurred interest in renewable energy and related sectors, leading to increased M&A opportunities.

Looking ahead, the Middle East’s M&A market is poised for a unique position amidst global uncertainties. Despite challenges, the region offers potential for strategic and transformative deals. However, success in this complex environment requires well-defined strategies and robust financial resources. Various trends are expected to shape the M&A landscape in the coming months:

1. Undeployed Reserves: Sovereign wealth funds and financial sponsors, despite challenges, continue to possess substantial dry powder for investments. The focus is likely to shift towards opportunities that enhance existing portfolios or offer cash-generating potential.
2. Small-scale Acquisitions: Limited financing options and scarcity of large-scale opportunities may drive private equity firms and SWFs towards smaller-scale bolt-on acquisitions. These deals can add value to portfolios, particularly when traditional growth channels are constrained.
3. Distressed Companies: The economic challenges could lead to an increase in mergers and acquisitions involving financially troubled companies. Asset sales and operational restructuring may create opportunities for distressed company deals.
4. Divestitures: Economic uncertainties may prompt larger companies to divest non-essential assets. Stock market downturns could catalyze divestiture opportunities.
5. ESG Considerations: Environmental, social, and governance (ESG) factors are gaining prominence in M&A activities. Investors scrutinize targets’ ESG practices, impacting deal outcomes and financing availability.

In summary, the M&A sector in the Middle East struggle to remains resilient to the effects of global economic issues. The unique dynamics of the region, and in particular the countries with a ‘Gulf climate’, continue to drive energy transition opportunities.

While there has been a slowdown in 2022, some countries in the region have minimised the negative impacts and some have even been able to sustain growth. Opportunities also remain available for companies with coherent strategies and financial resources to make significant and impactful deals. By taking into account emerging trends, including ESG issues, and focusing on sectors with strong resilience and growth potential, companies can prepare to unlock the potential of the M&A market in the Middle East.