MENA M&A value for Q1 2023 grows by 42% in comparison to Q1 2022

• The top five MENA target countries by deal value were the UAE, Saudi Arabia, Kuwait, Egypt and Oman
• Domestic deals were the major driver of M&A activity in the region, contributing 43% of total deal volume
• The UAE continued to lead MENA deal activity in terms of both volume and value

The MENA region witnessed a 42% increase in the total value of merger and acquisition (M&A) deals in Q1 2023 compared to the same period last year, according to the latest EY MENA M&A Insights report. Overall, the first quarter of the year saw 165 deals amounting to US$25.8b.

The United Arab Emirates (UAE) retained its status as the country with the highest deal activity in terms of volume and value, registering 42 deals worth US$2.0b. The Kingdom of Saudi Arabia (KSA), Kuwait, Egypt and Oman followed with deal values of US$1.7b, US$1.3b, US$0.6b, and US$0.2b, respectively.

While the value of deals across the MENA region increased significantly, indicating robust capital market confidence, the region witnessed a drop in deal volumes by 20% compared to the same period in 2022. Analysis suggests that declining oil prices, lower real GDP per capita growth rates and rising food inflation have combined to negatively impact the M&A market thus far in 2023.

According to the report, domestic deals were the main driver of M&A activity in the region, contributing 43% and 15% of the overall deal volume and value, respectively. With the volume and value of outbound deals accounting for 34% and 76% of the total, respectively, MENA buyers are seizing cheaper valuation opportunities during a period of global economic uncertainty.

M&A activity involving private equity (PE) or sovereign wealth funds (SWF) represented 32% and 68% of the total deal volume and value across the three months, respectively, while cross-border deals amounted to 57% and 85%, respectively.

Brad Watson, EY MENA Strategy and Transactions Leader, says:

“The global economy is moving through a period of protracted uncertainty, which has resulted in a marked slowdown in overall deal volumes. However, total deal values surged despite the pressures of rising interest rates, declining oil prices and soaring global inflation. A significant portion of this growth came from SWFs, such as the Public Investment Fund (PIF) and Mubadala, which continued leading the region’s deal activity as each country strove to deliver upon its economic strategy.”

The technology sector leads the domestic market segment

Sectoral analysis in the report shows that the technology industry witnessed the highest number of deals in the domestic market segment in Q1 2023, with 19 deals worth a total of US$461m in disclosed value. Fintech- and e-commerce-related deals were noteworthy during the quarter.

In other sectors, the construction industry saw PIF acquire Nesma & Partners Construction for US$1.3b in KSA – the largest domestic deal in Q1 2023. The real estate sector delivered eight domestic deals, with Tamdeen Investment Company acquiring an additional 52% stake in Tamdeen Real Estate Company for US$1.1b, marking the second-largest domestic deal. The professional firms and services sector witnessed seven deals worth US$236m by disclosed value in Q1 2023, compared to 12 deals totaling US$54m in the same period last year.

Anil Menon, EY MENA Head of M&A and Equity Capital Markets Leader, says:

“It is noteworthy that technology is the most active sector for inbound investment in MENA. With continued diffusion of technology across industries, more reasonable valuations, growing adoption of fintech and e-commerce have all catalyzed greater interest in the regional digital economy.”

Inbound deals affected by rising oil prices

Q1 2023 witnessed a drop in the number of inbound deals, totaling 39 with a disclosed value of US$2.4b, compared to 44 deals worth US$3.4b in Q1 2022. The three oil and gas inbound deals were in exploration, production, and equipment and services, which shows that the rising oil prices in 2022 significantly impacted the quarter. Only one of the oil and gas deals had a disclosed value of US$1.6b, contributing to 66% of the disclosed inbound deal value for Q1.

The UAE remained the favored investment destination, although the total number of deals in the country dropped from 22 in Q1 2022 to just 16 in Q1 2023. For inbound deals, France was the top bidder country by both value and volume, with US$1.6b spread across seven deals. Hong Kong followed with US$0.4b on two deals, while China, India and Malta bid US$0.2b, US$0.1b and US$0.1b, respectively.

Chemicals, technology and provider care dominate outbound deals

In the first three months of 2023, the region saw 55 outbound deals, which amounted to US$19.6b, compared to 56 outbound deals totaling US$8.4b in Q1 2022. The chemicals, technology and provider care sectors contributed 96% of the total outbound deal value.

The technology sector delivered 20 outbound deals, representing 36% of the quarter’s total outbound deal volume. The three outbound chemicals deals had a combined value of US$11.7b and focused on petrochemicals and specialty chemicals. PE- or SWF-involved transactions accounted for 40% and 79% of the total outbound deals in terms of volume and value, respectively. The UAE remained the highest bidder by volume and value.

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