UAE leads first-half Mena M&A deal activity driven by sovereign funds

Aggregate deal value remains stable but volume of overall Mena transactions declined amid higher interest rates and global economic uncertainties, EY says

The Abu Dhabi skyline. The UAE’s M&A deals accounted for a significant part of the GCC total in the first of 2023. Victor Besa / The National

The UAE, the Arab world’s second-largest economy, dominated mergers and acquisitions activity in the Middle East and North Africa region, leading in both volume and value of transactions in the first six months of the year.

Government policies and efforts to boost the ease of doing business drove deal flow and foreign direct investment into the country, consultancy EY said in its first-half Mena M&A report.

Overall deal activity across the entire region, however, slowed due to the continued rise in interest rates amid global economic headwinds during the six-month period.

The number of deals fell 14 per cent year on year to 318 at the end of the first-half of this year, while the deal volume for the Gulf states reached 254.

“Deal making got off to a slow start in 2023 with rising interest rates, persistent inflation and economic uncertainty weighing heavily on M&A activity,” said Brad Watson, EY Mena strategy and transactions leader.

“Despite the marked drops witnessed across the board, the UAE remained the favoured investment destination in the first half of the year, driven by government reforms that continue to attract investment into the country.”

The M&A activity in the broader region was led by government entities and sovereign wealth funds, with about 80 per cent of total deals originating in GCC countries, according to EY.

The value of Mena deals remained flat on a yearly basis at $43.8 billion. The GCC accounted for the bulk of that amount, with the aggregate value of deals reaching $42.5 billion at the end of the first half of this year.

The UAE’s M&A deals accounted for a significant part of the GCC's total deal values and volumes.

It ranked as the highest among the Mena target countries, with 82 deals valued at $6 billion and also as the top bidder country, with 115 deals valued at $20.2 billion during the six month period.

The UAE government has made enhancing the ease of doing business in the country as its top priority to increase FDI inflows to the country, Abdullah bin Touq, Minister of Economy, said in February.

It has already introduced a series of measures including 100 per cent foreign ownership of companies to more flexible visa schemes and long-term residence options that are also attracting more capital to the country.

In July, the UAE launched the new Ministry of Investment as part of an orchestrated push to boost foreign investment that is expected further advance deal activity in the country.

The UAE recorded its highest FDI inflow at $23 billion in 2022, up 10 per cent annually, according to the World Investment Report 2023 issued by the UN Conference on Trade and Development.

The Emirates was followed by Saudi Arabia and Kuwait, in terms of both the top bidder and target countries. Egypt and Oman also made it among the top five bidder countries by value, while Bahrain and Qatar were included among the top five target countries.

Sovereign wealth funds including the Abu Dhabi Investment Authority and Mubadala Investment Company in the UAE as well as the Public Investment Fund in Saudi Arabia continued to lead deal activity in the region to support their countries’ economic strategies.

Transactions involving private equity or sovereign funds constituted about 23 per cent and 53 per cent of the total deal volume and value, respectively, during the first half of the year, EY said.

In March, US asset manager Apollo Global Management and Adia announced plans to acquire UAE-based Univar Solutions for $8.2 billion.

Blackstone along with Adia also signed a definitive agreement to acquire the UAE’s Cvent Holding for $4.7 billion in the same month.

In April, PIF-owned Savvy Games announced plans to acquire a 100 per cent stake in the US mobile games developer Scopely for $4.9 billion.

Canada, which has been investing heavily in the UAE, was the largest acquiring country outside the region by volume, with transactions worth a total of $2.6 billion.

However, France marked the highest number of inbound Mena deals with 13 in the first half of the year, EY said.

Cross-border deals accounted for 57 per cent and 85 per cent of the total deal volume and value, respectively, becoming more popular among growth-focused companies.

Outbound deals represented 32 per cent of the total M&A deal volume and 70 per cent of the value.

The value of deals involving government-related entities reached $29.9 billion, accounting for 68 per cent of the total disclosed deal value and 19 per cent of the deal volume.

In terms of domestic M&A, deal activity dropped by 24 per cent annually in first half of this year with 138 deals.

The disclosed deal value also fell by 53 per cent, amounting to $6.7 billion during the period, according to the report.

In terms of sectors, technology contributed $15 billion to the total Mena deal value, followed by chemicals at $11.9 billion.

“In line with historical trends, the technology sector witnessed the highest inbound and domestic deal activity in first half of 2023,” said Anil Menon, EY Mena head of M&A and equity capital markets leader.

“Investor interest focused mainly on cyber security, cloud computing, FinTech and e-commerce, clearly indicating the segments that are poised to shape the future of the industry.”