MENA firms eye more investments, acquisitions; revenues to recover in 2022

Middle East expected to generate most growth, opportunities for next 3 years

  
Image used for illustrative purpose.

Image used for illustrative purpose.

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Businesses in the Middle East and North Africa (MENA) region expecting to make a comeback from the coronavirus pandemic next year are looking to make further investments through digital transformations and mergers and acquisitions, a new research suggests.

About 71 percent of executives questioned in an EY survey said they are likely to see revenues return to pre-pandemic levels by 2022 or earlier, while 69 percent anticipate a “normalised profitability” within the same timeframe.

Businesses around the world have been battered by the coronavirus outbreak, with many companies shutting down or laying off staff. In the Middle East region, businesses in the aviation, tourism and hospitality sectors are among those bearing the brunt of weak consumer demand, with the impact exacerbated by low oil prices.

About 90 percent of the executives polled by EY said they indeed experienced a decline in revenue due to the pandemic, although most of them claim they feel satisfied with their performance during the crisis.

Video: MENA revenues will return to pre-pandemic levels early 2022

Outlook

Despite the challenges they’ve been through, companies in the region are showing some resilience.

In order to stay relevant and achieve growth, strategies are centred around digital transformation, as well as mergers and acquisitions (M&A).

In the next 12 months, 37 percent of MENA organisations are planning to actively acquire businesses as they look to accelerate growth in the post-pandemic world. About 84 percent of executives also plan to invest in bolt-on acquisitions.

“The reduced travel, social distancing, remote working and low oil prices of the past year have had a disproportionate impact on corporate earnings. Yet MENA corporates remain nimble and resilient, with executives finding that the current circumstances present a unique time for M&A, with several sectors ripe for consolidation,” said Matthew Benson, EY MENA strategy and transactions leader.

Benson noted that M&A activity last year was largely led by government-related entities and transformation of state-backed companies like Aramco and ADNOC, as well as the investment strategies of Abu Dhabi Development Holding Company (ADQ) and Saudi Arabia’s Public Investment Fund (PIF).

Last year’s deals were in line with the general trend toward privatisation efforts related to key infrastructure assets, such as electricity, aviation and housing.

“However, there is also a strong pipeline of interesting mid-market opportunities, largely driven by sellers’ needs to raise capital,” said Benson.

When it comes to investments, 81 percent of business executives said they expect the Middle East to be a preferred destination, which will generate the most growth and opportunities for their company in the next three years.

Other strategies

A significant number (87 percent) of MENA companies are also undertaking business and technology transformations to stay relevant and step up growth.

“MENA respondents cited a specific focus on accelerated digitisation of customer journeys and business processes as their most important strategic action for growth,” EY said.

“Furthermore, they are looking for digital solutions that can help them increase customer interactions, and technology and automation that can reduce labour costs and increase scalability to drive increased profit margins.”

To support their transformations, 76 percent of MENA firms plan to invest more money in technology and digital, while 64 percent intend to focus more on innovation.

About 55 percent are also looking to acquire assets domestically.

(Writing by Cleofe Maceda; editing by Brinda Darasha)

Cleofe.maceda@refinitiv.com

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