• According to Lumina, despite the spectre of global recessions in early 2023, the Middle East provides a rare ‘bright spot’ for UK firms, with revenue contributions from UK PLCs set to grow 17%
  • Regional Private Equity will resurge in 2023, along with the exciting growth of liquidity providing secondary funds
  • 2023 is expected to set new records for FDI into the region

Dubai, UAE: Middle East and North Africa (MENA) and United Kingdom cross-border trade and deal activity surged in 2022, driven by two-way capital flows as multinationals and funds sought access and investments in the region, Lumina Capital Advisers said in a recent report. According to the Lumina Cross-Border Insights report, 2023 is predicted to mark another record for cross-border Middle East transactions in light of a resilient regional-led global M&A environment and strong activity in traditional industries like manufacturing, oil & gas services and industrials.

Key report findings:

  • The Middle East represents a rare global ‘bright spot’ for UK companies

With the largest ever UK-listed PLC revenue contribution from the MENA region, up to 15% compared to 12% four years ago, the Middle East promises a rare worldwide “bright spot” for UK firms seeking global growth. Revenues from the region for UK PLCs in 2021 amounted to GBP 11.1 billion, which came increasingly from non-oil sectors, such as healthcare, industrial, infrastructure, and technology. Furthermore, Lumina projects that UK PLC contributions to the Middle East would increase to 17% in 2023, contributing an additional GBP 1.6bn to UK PLC companies. While aerospace remains the largest sector, growth remained flat year-over-year.

This upward trend is also expected to be accelerated by the USD 900 billion opportunity in KSA itself, particularly in green energy and industrials, encouraging UK companies to expand regionally.

  • Diversifying revenues away from oil & gas sectors

FTSE-listed oil and gas companies contributed significantly less to the economy in 2021 due to higher oil prices and regional governments’ efforts to diversify revenues and grow income from the non-oil and gas sectors.

Andrew Nichol, Partner at Lumina Capital Advisers, said, “Countries in the MENA region continue to adopt a ‘post-oil’ mindset, creating opportunities for major global market players to expand their operations. This has been complemented with an emphasis on large-scale digital transformation aligned with national visions and goals. Several sectors, including fintech, automotive, infrastructure, and engineering, are pushing to develop innovative technologies to stay competitive.”

  • UK companies established in the region grew their operations in 2022

With a myriad of opportunities available and its ongoing overall global relevance, it is unsurprising that UK companies established in the MENA region grew their operations in 2022.

The region witnessed a continued trend of new companies expanding into the region for the first time. In 2021, six of the top 10 FTSE 250 companies with Middle Eastern revenues have expanded regionally, bringing the total to 30 FTSE-listed companies active in the region, Lumina reported. As an engine for global growth in 2023, the region will continue to be attractive to
new companies setting up and for top talent as individuals seek career growth and development opportunities in the face of more challenging global labour markets.

  • FDI into the UAE and KSA reached record levels in 2022

FDI into the UAE and KSA continued to set records in 2022. In 2023, Lumina anticipates KSA FDI to exceed the UAE's for the first time since 2012. In addition, Lumina noted that FDI into the UAE and Saudi in 2022 reached record levels, with USD 40bn invested, representing a YoY increase of 58%. Key MENA projects driving FDI and UK-to-Middle East investment in 2023 will include infrastructure and engineering, tourism and hospitality, and clean/renewable energy, most notably, the mega-projects in KSA. In KSA alone the top seven infrastructure projects (NEOM, ROSHN, Diriyah Gate, Jeddah Central, Red Sea Project, AlUla, and Qiddiya) will cost USD 690bn to build. Their scale reflects the far-reaching visions of their sponsors. Regional presence for aspiring global firms to take advantage of such growth is now seen as a must rather a nice-to-have.

  • Dramatic changes to the capital raising environment

Over the past 18 months, a significant decrease in investment rounds due to the worldwide recession in the IT industry has caused a considerable change in the capital-raising environment. Nichol notes, “Venture capital investments and transaction activity peaked in 2021, and we expect 2023 activity to return to 2019-2020 levels. However, it is expected that some bright spots will be seen in deep technology, artificial intelligence, digital transformations, cybersecurity, and other technology creators.”

Nichol continues, “A USD 7.6 billion investment in regional venture capital over the past five years points in the direction of a resurgence in regional private equity investments, both direct and secondaries, being the fastest-growing alternative asset class in 2023.” Lumina predicts dealmaking will remain resilient despite global headwinds in 2023.

Lumina’s Predictions for 2023:

Nichol comments, “2023 will be a tale of two halves, with H1 seeing highly active Middle East corporates and funds continuing to invest into European companies, as domestic markets continue to face varying levels of economic turbulence. This will create a myriad of investment opportunities to diversify globally and gain access to best-in-class skills and talents. In H2 we anticipate improving sentiment across developed markets, which will drive global demand for natural resources, oil included. The region is extremely well positioned for yet another strong year ahead.”

  • 2023 dealmaking to remain resilient despite global headwinds

Lumina saw a hugely resilient regional-led global M&A environment in 2022, with traditional sectors such as manufacturing, oil & gas services, and industrials showing strong levels of activity. With significant infrastructure spending announced regionally, consolidation in the construction and contracting sectors is gathering pace to build regional champions with the technology and specialist skills to service increasingly large-scale, complex projects. Family conglomerates and private equity continue to utilize the IPO boom in the regional public markets to facilitate exits and raise capital.

  • Two-way investment will drive record FDI levels

Lumina expects to see a continuation of two-way capital flows between the Middle East and Europe and expects no let-up in the levels of regional infrastructure investment. As global corporates and funds increasingly set up roots in the region, with talent continuing to move in, 2023 is anticipated to be another record year for FDI in the Middle East.

  • Ongoing JV and corporate restructurings

Lumina also believes there will be a significant shift in partnerships that already exist in the region with UK companies reassessing existing Middle East JVs, to view whether they are fit for purpose today given that many were set up decades ago. Dividend policies, governance structures, minority protection rights, and appropriate treatment of technical services costs (particularly in engineering firms) are all key focus areas. With increased activity between the regions, many international firms will want to ensure their existing contractual arrangements are fit for purpose in an era of growth amidst global challenges.


About Lumina Capital Advisers

Lumina Capital Advisers Limited (“Lumina”) focuses on matching capital and transactions

between the Middle East and the UK. With presence in London, Dubai and Riyadh, Lumina’s team of experienced dealmakers brings senior level international expertise to family conglomerates and private equity clients from the region, the UK or around the world. With over 100 years of collective experience, the team at Lumina has advised on more than 100 M&A, financing and restructuring transactions across the globe. They have consistently delivered unconflicted, dynamic and international standards of deal execution with longstanding counterparty relationships. Lumina is regulated by DFSA.

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