Middle East M&A activity scales 59% in H1 2021

The Middle East recorded strong M&A (mergers and acquisitions) activity with 307 deals in H1 2021 – an increase of 59 per cent and 48 per cent compared to H1 2020 and H2 2020 respectively, a new study has revealed.

According to law firm Baker McKenzie’s report, total deal values dropped 7 per cent to $40.3bn in H1 2021 from $43.5bn in H1 2020.

Overall deal making volumes in the Middle East was up across all months, with the highest being in March, recording 75 deals with an year-on-year increase of 114 per cent. Value-wise, January, March and April fared better compared to the previous year with April being the most prolific with $19.2bn in total value. Majority of deals in the region during the first half of the year were cross-border in nature, with companies looking at new opportunities and/or progressing those that were suspended in early 2020 at the outbreak of the pandemic.

Cross-border M&A deal activity was higher in volume and value with 199 deals worth $30.7bn, increasing 43.2 per cent and 41.4 per cent respectively from H1 2020. With regards to domestic deals, volumes in H1 2021 were higher than those in H1 2020 with 108 versus 54, however values dropped to $9.5bn, marking a year-on-year 56.2 per cent reduction.

Cross-regional deal volumes and values in H1 2021 also soared from the previous half-year as well as year-on-year with 170 deals valued at $30.2bn in comparison to 126 and 138 deals worth $22bn and $9.5bn in H1 2020 and H2 2020, respectively.

Osama Audi, M&A, private equity and venture capital partner, commented: “The sectors that have shown sustained growth with high levels of interest from regional and global investors include the technology and venture capital space with the Kitopi Series C funding led by Softbank, the Anghami SPAC merger and the recently announced Swvl SPAC merger being just a handful of the late-stage tech transactions in the region.

“We anticipate that, in the months to come, there will be a sustained increase in tech-focused regional and out-bound M&A (with Indian tech and bio-tech investments from the region also being of particular interest) as investors continue to hunt opportunities in this fast growing sector. In addition, the tech companies themselves will likely need to focus on growing revenue in-organically through acquisitions.”

“We have also seen sustained growth in the monetisation/ commercialisation strategies being implemented across the region by government owned/controlled entities with the slate of ADNOC deals, the Aramco pipeline deal and a host of announced utilities privatisations attracting interest from global and regional institutional investors.”

Inbound cross-regional Middle East M&A
The volume and value of deals into the Middle East improved significantly in H1 2021 as compared to the previous two halves of 2020 jumping to 68 deals at $20.87bn. Investors based in the United States were the leading source of in-bound investment into the region, making 21 deals totaling $12.67bn. In volume and value, the US was followed by investors based in the United Kingdom (with 9 deals) and Denmark (with $4.077bn of deals).

The energy and power industry was the top target industry by value, with six deals valued at $15.5bn in H1 2021. The consumer products and services industry came in second with a reported value of $4.083bn. As for volume, the financials sector ranked first with 15 deals followed by consumer products and services and high-tech (10 and 9 deals, respectively).

Outbound cross-regional Middle East M&A
Outbound M&A activity from the Middle East into other regions also grew by volume and value from 80 deals at $4.7bn in H1 2020 to 102 deals at $9.3bn in H1 2021.

The US remained the top target country for outbound deals in volume with 22 deals. However, deal volumes reduced during H1 2021 as compared to H1 2020, which saw 26 deals being reported. The high-tech sector was the primary industry of interest for investors, with 22 outbound deals in the period, followed by energy and power with 18 deals. Value-wise, the largest outbound deals were in the energy and power ($2.8bn) and retail ($2.041bn) sectors.

Global M&A activity also saw a rebound during the first half of 2021, with total deal values and volumes, increasing 120 per cent and 22 per cent from H1 2020 respectively.

“Last year was probably the most turbulent year for the M&A market in the Middle East and across the globe in decades. Despite continuous pandemic uncertainties in 2021, the region has seen a steadily ascending level of M&A activity since the beginning of 2021 and is currently witnessing substantial growth in both values and volumes as deal makers’ appetite return with a focus on capturing opportunistic deals,” said Omar Momany, partner and head of the corporate M&A practice group at Baker McKenzie Habib Al Mulla.

“Notably, the high volumes and values by the beginning of 2021 and especially towards the mid of the first half of the year, demonstrate a strong comeback for dealmakers after a challenging 2020 and promise continued deal making momentum until year end,” he added.