A bullish economic outlook is set to attract more inbound M&A to the Middle East and North Africa (MENA) in 2024 following a disappointing 2023, industry experts forecast.

Prospects of a weakening dollar and depressed asset valuations could also bolster private equity deals in sub-Saharan Africa, they said.

M&A activity in the Middle East and Africa region slumped to its lowest level — in terms of the value and number of transactions — in nearly a decade in 2023, S&P Global Market Intelligence data shows. There were 1,062 deals worth a combined $45.6 billion in 2023, down from 1,412 acquisitions and an aggregate value of $76.6 billion in 2022.

Higher interest rates have deterred M&A activity globally, especially by private equity firms, which rely on borrowing to part-fund deals.

Yet private equity is becoming more active in MENA, on the back of the region's positive demographic and economic outlook, said Jon Connor, HSBC Holdings PLC's co-head of investment banking for the Middle East, North Africa and Turkey.

"If interest rates decline, private equity may return to the fore of M&A, so there's arguably a window of opportunity for [Middle East, North Africa and Turkey] corporates and sovereigns to deploy their capital now while private equity is still on the sidelines," Connor told Market Intelligence.

That could accelerate M&A in the first half of 2024, Connor said.

'An expanding consumption story'

The MENA region's economy will expand 2.9% in 2024 and 4.2% in 2025, the International Monetary Fund forecast in a January report projecting that sub-Saharan Africa's GDP will grow 3.8% in 2024 and 4.1% in 2025.

"It's an expanding consumption story, especially relating to consumer goods, education, healthcare, logistics and infrastructure," said Connor. "There's also an influx of intellectual capital, especially to Saudi Arabia, and to the region overall."

Oil and gas, petrochemicals, renewable energy, and financial services are other sectors likely to attract sizeable M&A activity in 2024, Connor said.

Three of the 10 biggest inbound Middle East and Africa deals in 2023 were of companies based in the United Arab Emirates. Three were in Israel, two in Saudi Arabia and two in South Africa. These spanned energy and utilities, materials, financial services, consumer goods, and healthcare, and they included the purchase of Abu Dhabi fertilizer company Fertiglobe PLC by Abu Dhabi National Oil Co. and the acquisition of Dubai-based payments firm Network International Holdings PLC by Brookfield Asset Management Ltd.

In total, there were 173 technology, media and telecom deals in the region in 2023, followed by 165 in the materials sector, 149 in the consumer space, 119 in financials and 110 in industrials.

In MENA, government-related entities are merging subsidiaries to create national industry champions with deeper pockets to invest, said Abdulwahid Alulama, a partner at law firm White & Case in the UAE.

"This year, the broader M&A outlook seems better. Mid-2023 was a little slower and investors were more cautious, but the [government-related entities] were still very active," said Alulama. Sentiment has improved now, and deals are back on, Alulama said.

In early 2023, the specter of a global, or multiregional, recession deterred many prospective buyers from pursuing acquisitions.

"Those recessionary fears haven't vanished, but they've lessened, and that gives executives more confidence about deploying capital," HSBC's Connor said.

"We're seeing much less resistance in fee conversations with clients now versus 12 to 18 months ago," Connor said. This is partly due to supply and demand, in that there is finite capability among international investment banks with an on-the-ground presence to serve clients, he said.

Gulf outbound

Gulf sovereign funds, which are among the largest and most active worldwide following a sustained hydrocarbons windfall since the Russia-Ukraine conflict began, will make further outbound investments, said Alulama. These will include investments into other Middle Eastern countries such as Egypt.

"The United States [also] continues to be a focus, but they're also pivoting towards Asia-Pacific, China, Japan and India," Alulama said.

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Meanwhile, a priority for HSBC this year is to further develop the Middle East-to-Asia M&A "corridor," Connor said.

M&A activity, especially outbound from MENA to other regions, also allows investment banks to offer supplementary services like foreign exchange and hedging. This has become a growing requirement as deals take longer to complete due to greater regulatory scrutiny globally, exposing prospective buyers to heightened risks, Connor said.

Sub-Saharan Africa

South Africa had the largest number of deals in the Middle East and Africa region in 2023, at 280 deals, for a total aggregate transaction value of $5.82 billion.

The country will hold a general election in 2024, with polling indicating that the African National Congress may receive less than 50% of the vote for the first time since coming into power following the end of apartheid.

"There's some caution among international investors regarding doing any significant acquisitions in South Africa before the vote," said Gary Felthun, a partner at White & Case in Johannesburg.

In South Africa, loadshedding — or rotational electricity blackouts — due to the creaking infrastructure of state utility ESKOM has roiled the country's heavy industries and deterred foreign investment, although power outages are diminishing.

Zambia could attract further foreign investor interest in its mining sector and other industries this year, Felthun said. Zimbabwe is always of interest due to the extent of its resources, but political concerns remain. Namibia, which said it would produce its first oil from major offshore fields starting in 2030, is also attracting significant foreign investor interest.

White & Case expects some M&A in the platinum sector in 2024. "The price of the metal has dropped significantly, so there's an opportunity to buy certain resource assets at cheaper prices than has been the case for a while," he said.

South Africa holds 63,000 metric tons of platinum group metals reserves, or 90% of the global total, according to Statista.