With the world being in the state is in in right now, especially after 12 months of uncertainty thanks to a pandemic that is hopefully on its way out soon, it stands to reason that mergers and acquisitions (M&As) in the Middle East would slow down.
Now, and according to new data by multinational law firm Baker McKenzie, it seems M&A activity wasn’t as muted as one would expect.
As per this research, Baker McKenzie notes that there were 220 M&A deals in H2 2020, down 2% from 225 in H2 2019 whereas total value slightly increased by 3% to $14.5 billion from $14.1 billion for the same period last year.
For the full year of 2020 however, there were 423 M&A deals, a 13% decrease from last year while deal value significantly dropped by 51% to $58.7 billion, compared to 2019 demonstrating signs of distress, according to the latest report by global law firm Baker McKenzie.
Towards the end of the year and specifically in November 2020, deal volumes and values in the Middle East surged up to 52 deals at $4 billion, up 56% from the same month last year.
Globally, after a weak first half brought by the COVID-19 pandemic, global deal making recovered nicely during the second half of the year. Total value was $2.3 trillion, up 31% from H2 2019 whereas total deal value for the full year 2020 was $3.6 trillion, down 6% from 2019. Total volume for H2 2020 fell by 3% against H2 2019 with 25,053 deals as compared to 25,744. Though compared to the previous half year (H1 2020), the number of transactions actually increased by 12%. For the full year 2020, volume decreased by 5% against 2019.
Commenting on the Middle East’s M&A activity for the second half of 2020, Omar Momany, Partner and Head of the Corporate M&A Practice Group at Baker McKenzie Habib Al Mulla based in Dubai said: “This year we have witnessed smaller deals dominate the M&A market which is expected given the current economic uncertainty and global market disruption caused by the COVID-19 pandemic. Nevertheless, the megadeals we’ve seen in some sectors such as high technology, financial institutions, energy and power and real estate have shown that there is interest in the region.”
Middle East M&A activity
Overall, the majority of deals in the region for H2 2020 were cross-border in nature with companies looking to achieve business synergies and the region as a whole looking to weather the economic storm brought about by the COVID-19 pandemic.
There were 73 domestic deals in H2 2020 totaling $4.6 billion, as compared to only 68 deals totaling $3.7 billion in H2 2019. Full year figures though, showed a stark difference with 137 total deals worth $27 billion, a big drop from the 169 deals and $80.6 billion in 2019.
On the other hand, cross-border transactions dropped in H2 2020 with 147 deals totaling $9.9 billion, as compared to 157 deals worth $10.4 billion for the same period last year. For the full year, the region was involved in 286 cross-border deals for $31.7 billion, a significant drop from the 320 deals recorded in 2019 totaling $38.7 billion.
Cross-regional deal volumes also dipped in full year 2020 from the previous year (264 deals vs. 295 deals in full year 2019), but deal values increased slightly from $29.6 billion to $31.17 billion.
Inbound Cross-regional Middle East M&A
The volume and value of deals into the Middle East rose slightly in H2 2020 from H2 2019 with 46 deals for $3.9 billion vs. 40 deals for $1.6 billion. The same applies when comparing year-on-year – 92 deals for $20.8 billion for the full year 2020 vs. 85 deals for $15.5 billion for the full year 2019.
On cross-border deal making, the United States remained the top acquirer country by volume and value with 11 deals for $2.9 billion in H2 2020 and 19 deals for $14.1 billion for the full year 2020.
The High Technology sector was the top target of inbound investors in terms of volume of deals, making 10 deals in H2 2020 and 19 for the full year 2020, followed by Financial Services with 7 and 17 deals, respectively.
In terms of value, the biggest deals in full year 2020 belong to the Energy and Power sector with $10.1 billion in total value. This was likely the result of the UAE’s Energy Strategy 2050 which aims at diversifying energy sources and reducing carbon footprint. As for the second half of 2020, the Real Estate sector came first and featured the region’s largest real estate transaction, involving $2.7 billion in upfront proceeds paid by NYSE listed Apollo Global Management to Abu Dhabi National Oil Company (ADNOC) in relation to a long-term lease agreement of ADNOC’s real estate assets.
Outbound Cross-regional Middle East M&A
Cross-border deals in the Middle East were mostly outbound transactions with 92 deals totaling $5.6 billion in H2 2020 and a full year total of 172 deals at $10.3 billion.
For outbound transactions, the United States was also the top investment target country with 14 deals worth $1.7 billion and 40 deals totaling $5.2 billion in H2 and full year 2020 respectively. Egypt ranked second right after the US in H2 2020 (13 deals) as well as full year 2020. India was ranked the second top target country by value with $1.2 and 1.3 billion in H2 2020 and full year 2020 respectively.
The High Technology sector also ranked as top investment target for Middle Eastern investors by volume for H2 2020, with 22 deals and a total of 34 for the full year. It was also the second top industry value-wise with $2.5 billion total for the full year 2020 following the Financial Services sector with $2.6 billion.