The outlook for M&A in the Middle East and Africa is buoyant, experts say, citing heightened eagerness among international private equity firms to invest in the Gulf and a renewed appetite to do deals in South Africa.
Jon Connor, HSBC's co-head of investment banking for the Middle East, North Africa and Turkey, described M&A activity in the region he covers as slightly greater in the first half of 2024 versus the year-ago period.
"The growth dynamics within the region, compared to where capital could be allocated in other emerging markets, is very strong vis-à-vis those alternatives," Connor said.
"Economic growth is driving international private equity to look at the Middle East with greater interest and execute transactions. The number of opportunities which suit private equity also is increasing — there's a greater openness to sell controlling and/or large stakes. So, the number of relevant opportunities is expanding."
Announced deals in the first half of 2024, for which the target headquarters was located in the Middle East and Africa region, were worth a combined $21.87 billion, up from $21.70 billion a year earlier, S&P Global Market Intelligence data shows. There were 4.9% fewer deals announced over that period, although that compared to a larger decline of 12.9% globally.
'A market that's growing'
What makes this region more attractive is the relative opportunity that the Middle East represents versus the rest of the world, Connor said.
"Comfort breeds comfort. If you're spending the time and money to put an investment team here, you don't just want to do one deal," he said. "Once you've done the first, you move on to the next. You want to grow in a market that's growing."
The largest deal in the Middle East and Africa region in the second quarter was Saudi Arabian Mining Company (Ma'aden)'s purchase of a minority stake in domestic rival Maaden Waad Al Shamal Phosphate Co. for $1.53 billion. The next largest was Abu Dhabi National Oil Co. (ADNOC)'s agreement to buy a gas concession in Mozambique for $1.15 billion, while Germany's SAP SE said it would pay $1.12 billion for Israeli software company WalkMe Ltd.
Other notable announced deals include Morocco's Saham Group SA announcing it would acquire Société Générale Marocaine de Banques, the Moroccan unit of French bank Société Générale SA for $798 million and Saudi Arabia-based Olayan Financing Company W.L.L. and UAE-based Lunate joining to buy Dubai office building ICD Brookfield Place for $735 million.
"Gulf corporations have been quite active in terms of making strategic acquisitions," Abdulwahid Alulama, a partner at White & Case in the United Arab Emirates, told Market Intelligence.
He cited ADNOC's purchase of a 24.9% stake in petrochemicals manufacturer OMV in February as an example of such a strategic-minded deal. Like ADNOC, the seller of the OMV stake — sovereign fund Mubadala — is ultimately owned by Abu Dhabi's government.
"GCC-based strategic buyers are increasingly active in various sectors such as energy, mining and agriculture — they're looking at opportunities to expand their operational footprint domestically and abroad," Alulama said.
The rest of 2024 is likely to be active, with Middle East sovereigns and PE firms deploying more capital, he said.
As the geopolitical climate in Europe and the US becomes clearer, that should create an uptick in outbound investments and M&A activity from the Gulf, Alulama said.
Connor highlighted intraregional deals, with the UAE-Saudi Arabia corridor of most significance.
"That's driven by the liquidity available in the UAE to fund acquisitions and the kingdom's attractive growth dynamics," Connor said. Consumer, tech, travel, real estate, tourism and infrastructure are among the most popular sectors, while Saudi's giga projects offer further opportunities.
"Saudi domestic consolidation has been a significant theme this year and we expect this to remain so for the foreseeable future," Connor said. "The government wants to create national champions in each important industry to help deliver the growth agenda."
Egypt, Turkey, South Africa
Egypt has embarked on an extensive privatization drive and asset sale to try to help bolster state coffers, with Gulf entities the most likely buyers, while M&A activity in Turkey has rebounded following a marked change in the country's economic policies that began with President Recep Tayyip Erdoğan's reelection in May 2023.
"A clarity of direction enables people to price the perceived risks, make investment decisions, deploy capital and calculate their likely returns," Connor said. "Pent-up Turkish M&A activity now coming through has been a major regional theme this year."
In South Africa, there was heightened market uncertainty ahead of the country's elections in May.
The ruling African National Congress failed to win an overall majority for the first time in the democratic era, leading the party to form a government of national unity with centrist rivals including the Democratic Alliance and Inkatha Freedom Party. The Economic Freedom Fighters, which pledged a radical manifesto, is not part of the new government, to the relief of the country's business elite.
"Markets have been very happy and receptive about the national unity government and there's a lot of optimism," said Gary Felthun, a partner at White & Case in Johannesburg.
Potential buyers were wary of doing deals ahead of the elections and few business owners were eager to sell due to what they considered to be overly reduced prices, Felthun said. The election result has fueled appetite for M&A, he said.
"Once US interest rates start to fall, there is hope that emerging market currencies generally could strengthen a little, which will add further optimism," he said.