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The first nine months of 2021 have been marked by a strong revival in M&A activity as the Middle East returns to growth after the COVID-19 downturn. During the first three quarters of the year, there were 323 reported completed deals, compared with 175 in the same period last year and 174 in 2019.
Activity within the Middle East during the first nine months was focused on the UAE, with 113 completed deals, followed closely by Egypt with 95. Saudi Arabia, which reported 61 deals, also experienced a strong recovery compared with the same period in 2020, while the rest of the region picked up as well.
“The first nine months of 2021 have been marked by a strong revival in M&A activity as the Middle East returns to growth after the COVID-19 downturn. This sharp rise indicates both pent-up dealmaking energy and the demand among investors to put spare capital to work. We are seeing an increased appetite for investing in companies/partnerships to accelerate the transformation of businesses which are being disrupted as well as reallocation of capital towards sector disruptors.”
Romil Radia
Middle East Regional Deals Markets Leader, PwC Middle East
Rise of Fundraising activity
Fundraising by tech companies has been a key driver of capital flows into the Middle East during the past nine months, with investments distributed across a range of sectors – notably, payment gateways and fintech companies, e-commerce and marketplace platforms, and online health and education platforms. Tech investment in the Middle East is further supported by the ambitious digital goals of national transformation programmes, including Saudi Arabia’s Vision 2030.
Sector highlights
Technology
Technology has been at the centre of deal activity across all key sectors: retail and consumer, financial services, e-commerce and technology and education and healthcare. While acquisitions have maintained momentum at FY20 levels, fundraising has become a major driver of activity.
Food and beverage
Food and beverage players were a key target in the consumer and retail segment, with regional players such as Almarai, Agathia and United Foods adding capabilities to their value chain through acquisitions. Funding has been spread across a broad range of online platforms offering automotive, apparel, and multi-product catalogue listings.
National Oil Companies (NOCs)
National Oil Companies (NOCs) are at the core of the infrastructure deals, which continue to be driven by government diversification and capital recycling agendas.
Telecommunication
The Telecommunication sector faces a growing need for investment in cyber security, data centres, IoT and Cloud. We see an upward trend in companies seeking off-shore acquisition opportunities to diversify revenue streams and optimise infrastructure assets.
Banking
Mergers & Acquisitions in Banking, Payments and Insurance are driving the Financial Services sector in the Middle East. We expect continued deal activity in these sub-sectors to create regional champions in a sector where scale is needed to withstand margin pressure.
Key M&A Themes
Against this positive background, we have seen the following key M&A themes emerging since the start of 2021:
Increased appetite for tech deals
Momentum in the capital market activity
Opportunities in the infrastructure sector triggered by capital recycling and national transformation agendas
The first nine months of 2021 have seen growing interest by angel investors, VCs and Private Equity in tech-based start-ups, including fintechs, online retailers and platforms in sectors such as healthcare, insurance, media publishing, food delivery and auto services.
There continues to be momentum in the key capital markets across the region. Some of the key IPOs include the float of $11b ACWA Power on Tadawul (KSA) and $10b ADNOC Drilling on Abu Dhabi Exchange (ADX). The IPO pipeline looks promising as there are a number of companies, particularly across KSA and UAE (including Government/SWF backed entities) which are currently preparing for IPOs or direct listings.
In July, the Middle East witnessed its first SPAC deal with the listing on Nasdaq of Anghami, a music-streaming platform headquartered in Abu Dhabi that covers the MENA region.
Amid increased fundraising by tech-based platforms, infrastructure and industrial segments maintained momentum. In the short to medium term, infrastructure deal activity will continue, as governments look to continue to invest in the infrastructure sector (both traditional and digital) and at the same time recycle capital and shift funds from oil-based segments to wean economies off energy revenues.
Saudi Arabia has been the leading regional driver of these changes.
Looking ahead
Across the region, companies are in line with the global M&A trend of corporates looking to gain a competitive advantage by acquiring capabilities they do not possess, often in technology.
At the same time, we see distinctive regional features in the momentum in the M&A market – notably, ambitious government transformation agendas such as Saudi Arabia’s Vision 2030 and Abu Dhabi’s Economic Vision 2030. COVID-19 helped to accelerate the region-wide drive to build data-driven knowledge economies by the end of the decade, as lockdowns, disrupted supply chains and a mass shift to remote working gave added urgency to technology investments and implementation.
Coming out of the pandemic, the commitment by Middle East governments to reduce dependence on energy revenues and lead global efforts to mitigate climate change mean ESG assets will be an increasingly important theme for investors.
While economic challenges remain, the evidence from this update is that confidence has returned to the Middle East, building on the region’s successful response to COVID-19. In this regard, business sentiment is especially positive in the UAE. Looking forward to 2022, we anticipate that value creation will be a key focus for most deals, as market conditions for M&A and fundraising continue to improve.
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