Last updated on June 23rd, 2023 at 10:24 am
The COVID-19 pandemic crisis has been an unprecedented event, with varying effects on individual countries and sectors in the Middle East. Reduced travel, social distancing, remote working and low oil prices have had a disproportionate impact on corporate earnings.
Yet, according to the latest results from the EY Global Capital Confidence Barometer, 71% of MENA respondents expect to see revenues return to pre-pandemic levels by 2022 or earlier, while 69% anticipate a return to normalized profitability within the same time frame. Although deal volumes in the region have followed decreasing global trends, the value of such deals has continued to increase.
There were atleast 10 deals that surpassed the threshold of $1 billion and what has been more promising is that most of it has been cross-regional M&A deals. This means that GCC is increasingly becoming an integrated economic region and that local investors and regulators are increasingly succeeding in working together.
With their diversification programmes in progress, the GCC companies are likely to increase their scope and the speed of their foreign acquisitions. There has also been a general trend toward increased privatization, especially in the Kingdom of Saudi Arabia (KSA), related to key infrastructure assets, including electricity, aviation, water, customs, staples and housing.
Merger and acquisition deals targeting the Middle East and Africa rose 52 per cent in the first quarter of 2021, led by the tech sector, as the region attracted more foreign investment, Merger market data shows. 81% of MENA respondents expect the Middle East to be preferred investment destination that will generate the most growth and opportunities for their company in the next years.
The Middle East and Africa region recorded a total of $32.7 billion across 110 deals in the first quarter of 2021, up from $21.5bn in 85 deals conducted during the same quarter last year, according to the financial data provider. Inbound activity reached $24.7bn across 52 transactions in the first quarter of 2021, the highest quarterly inbound value since fourth quarter of 2007, accounting for 75.6 per cent of the total regional M&A value so far this year. Except for the Middle East, all other global regions lost market share in the global deal value.
Most of the governments in the Middle East are enacting regulations that are more FDI friendly, both on a corporate level (foreign ownership of assets, easing of capital market norms and simplifying the ability to invest in local capital markets) as well as the citizen level (elongation of visa periods, citizenship, among other incentives).
At the same time, they are also trying to promote liquidity in the capital markets via mandatory listings for certain types of organizations and secondary markets for medium-cap companies. Even in the worst crisis known to humankind, most corporates remained largely resilient and nimble. They are capitalizing on the new normal and successfully pivoting their businesses to an exceptional intersection of the physical and digital worlds.
Businesses in the Middle East will continue to look overseas to solidify their capital base and implement innovation to drive business growth, all of which will contribute to deal activity in the region in the years to come.
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