PwC Reveals 6% Increase in M&A Activity in the Middle East in 2020

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PwC Middle East released today its third edition of TransAct Middle East report entitled ‘A Renewed Search for Value as Confidence Begins to Recover’ revealing that while the pandemic severely curbed Merger and Acquisition (M&A) activity globally, dealmakers throughout the region adapted rapidly and imaginatively to the crisis.

As businesses across the globe adapt to the COVID-19 crisis and look forward, they are reviewing their strategic strategic capital allocation and assessing what their core business should look like moving forward. In this context, the report anticipates the following themes will underpin deal activity in the Middle East over the coming two years:

 Focus on value preservation: Consolidation of operations and divestment of non-core assets, in line with the global emphasis on repairing and reconfiguring businesses.

 Government-led recovery: Strategic public investment to stimulate economies as well as accelerated privatisation programmes, especially in infrastructure and utilities.

Technology will be key: Further integration of new, digital technologies or disruptors into core sectors.

Opportunistic deals: Liquidity in the market will enable investors to acquire distressed assets in newer sectors including tech-based start-ups, facilitating portfolio diversification.

 Localisation: Continuing supply chain disruption, particularly in food and agricultural products, will intensify the focus on reducing dependence on imports.

Environmental, Social, and Governance (ESG) focus: We expect to see an increasing awareness and impact of ESG reflected in dealmaking as ESG focus is built into the core of organisations and investment decisions are also considered through an ESG lens.

Romil Radia,  Middle East Regional Deals Markets Leader at PwC Middle East said:: “We are living in a new normal where businesses are having to rethink their strategies and navigate the uncertainty. It is important that they remain agile and re-evaluate their strategy since deals can no longer be put on hold. The COVID-19 pandemic will continue to force businesses across many sectors to restructure and transform  their operations in the years to come. However, whilst it remains essential for deal makers to factor in the current, uncertain environment, companies and investors should also view M&A as an opportunity to achieve their strategic objectives and it may be the best or fastest way to fill in gaps, for example, in technologies or resources.

Worldwide, deal volumes for completed deals fell by 9% for 2020 compared to last year, as the pandemic delayed or halted transactions particularly in H1 of 2020. M&A activity in the Middle East, however, saw a marginal increase of 6% in 2020 compared to prior year. Overall, 235 deals were completed in 2020 in the region, compared with 221 for 2019. More than half (117) of these deals were valued at less than $100m, based on the 136 deals with disclosed values, with six deals worth more than $1bn.The report highlights several M&A trends which preceded the pandemic and have been reinforced by Covid-19. Additionally, the report talks about how the market disruption caused by the pandemic has opened up new areas for deal makers to explore. 

Ovais Chhotani, Deals Partner at PwC Middle East: “Whilst we have seen an increase in activity levels in H2-2020, deals are clearly taking longer to complete given the continued uncertainty and its resulting impact on valuations and deal structures. Going forward, expected consolidation across a range of sectors including those hit hardest by COVID-19, reallocation of capital across both public and private sectors, restructuring and/or digital  transformation of certain businesses which has become critical in the wake of COVID-19 are what we see as some of the key themes that will shape the Middle East M&A landscape over the nearer term.” 

With the Region at the forefront of the global vaccination drive, there is cautious optimism that we are on a path to a recovery whilst recognising that challenges do lie ahead. The shape of the recovery curve will vary considerably across the different sectors and investors need to carefully take this into consideration as part of their investment strategy. We see customer centricity, digital transformation and localisation of supply chains as some of the key factors which will influence the M&A strategy of businesses and investors across the region.