MENA region records 359 M&A deals signed worth $42.6bn in H1 2022: EY report

The MENA region recorded 359 merger and acquisition (M&A) deals worth $42.6bn during the first six months of 2022, according to the latest EY MENA M&A Insights report.

The increase in M&A activity represents a 12 per cent year- on-year (YoY) rise in deal count, driven by continued post-pandemic economic growth across the region fostered by high oil prices and growing confidence in corporate boardrooms.

According to the report, domestic deals contributed 48 per cent and 33 per cent of the total M&A deal volume and value respectively over the six-month period.

Although fluctuating crude prices, economic uncertainty and disruptions to global markets provided marginal impetus, deal activity was significantly driven by involvement of private equity (PE) or sovereign wealth funds (SWF).

The M&A activity involving PE and SWFs accounted for 35 per cent and 38 per cent of the total deal volumes and values respectively in the first half of 2022.

Among the domestic PE or SWF deals, the UAE was the most favored destination with 18 deals, while Saudi Arabia was the most active acquiring region with 27 deals.

The report also revealed that deals involving government-related entities (GRE) saw a total deal value of $16.9bn in the first half of 2022, accounting for 40 per cent of total disclosed deal value.

Interesting to note that GRE led deals have declined from an average of 62 per cent of value in the prior years to 40 per cent of value signalling an increased participation by the private sector in regional deals.

Brad Watson, EY MENA strategy and transactions leader, said: “Despite the global economic uncertainty, we are continuing to witness a positive trajectory in M&A activity across the MENA region as economic diversification initiated by governments continue to buoy interest in strategic transactions. Fiscal reforms, particularly in the UAE and Saudi Arabia, aimed at strengthening cooperation between the public and private sector, are increasing the appetite of investors, while government-led initiatives across the board are supporting the region’s burgeoning start-up ecosystem that further increase deal activity.”

Top five MENA target countries by deal value
The UAE led the top five target countries across the MENA region, with 105 deals signed worth $14.2bn. This was followed by Egypt with 65 deals worth US$3.2bn, Saudi Arabia with 39 deals worth $2.8bn, Morocco with 18 deals worth US$1.8bn and Oman, where 10 deals were inked with a total value of $0.7bn.

Top five target sub-sectors in the MENA region, by deal value
Amidst the volatility for commodity prices and inflationary pressures, GCC region continued diversifying from its oil and gas businesses. Consequently, industries such as transportation, consumer products, telecommunications, real estate and power and utilities continued to attract the lion’s share of investments.

Anil Menon, head of MENA M&A and ECM, EY, says: “The most interesting development in the MENA M&A market in H1 2022 is the reduced dependence on GRE led deals. The private sector is leading the charge in deal making in MENA, which is reflective of the attractive fundamentals, abundant liquidity and rerating of longer duration growth companies.”

Domestic deals
Overall, 173 domestic deals were concluded worth $13.9bn in the first six months of 2022. Three deals formed around 41 per cent of the domestic M&A value.

Ghitha Holding agreed to acquire Tamween Management for $2.4bn; Q Holding acquired Reem Investments for $1.6bn; and Saudi Arabia’s Public Investment Fund acquired Kingdom Holding Company (16.8 per cent stake) for $1.5bn.

The top five domestic sub-sectors by deal value were: real estate ($3.3bn), consumer products ($2.9bn), banking and capital markets ($2.4bn), asset management ($1.5bn) and other transportation ($0.8b).

Inbound deals
Rising energy prices, implementation of business-friendly reforms in the region as well as the easing of government travel restrictions resulted in higher inbound deal volume in the MENA region, with 94 deals, worth $9.8bn, compared to 62 deals in the same period last year.

The UAE continued to be the favoured investment destination with 51 deals worth $7.4bn during the first half of 2022, supported by the reforms aimed at strengthening its business environment, attracting foreign investment and incentivising companies to set up or expand their operations.

Egypt also emerged as another major investment destination with deal activity surging thrice in 6M 2022 YoY, mainly led by favourable government initiatives including granting a special license to foreign investors.

US leading the inbound deal activity in the MENA region
US-based entities were the most active investors in MENA, in terms of deal volume, taking part in 30 per cent of inbound deal activity with a particular focus on technology-related investments. Activity was largely driven by the $5bn deal signed in June by Caisse de Depot et Placement du Quebec to acquire a 22 per cent stake in Jebel Ali Free Zone, a 22 per cent stake in National Industries Park, and a 22 per cent stake in Jebel Ali Port.

The top five sub-sectors by deal value were: other transportation ($5bn), power and utilities ($1.7bn), technology ($1.5bn), chemicals ($0.6bn) and real estate ($0.4bn).

Outbound deals
In the opening six months of 2022, the region witnessed 92 outbound deals, which amounted to $19bn in comparison with 75 deals amounting to $5.2bn in 6m in 2021. The UAE saw the highest number of outbound deals, led by the technology and consumer products sector, which contributed to 35 per cent in terms of deal volume out of 54 outbound deals from the UAE.

The UAE also witnessed the largest outbound deal, signed in May, as Emirates Telecommunications Group Company acquired a 9.8 per cent stake in the UK’s Vodafone Group in a deal worth $4.398bn.

The top five outbound target sub-sectors by deal value were: telecommunications ($4.4bn), media and entertainment ($3.5bn), airlines ($2.2bn), consumer products ($1.3bn), and power and utilities ($1.3bn).