Executives in the MENA region remain cautiously optimistic about the economy and their growth prospects. They are similarly showing muted enthusiasm about their appetite to pursue mergers and acquisitions this year.

In their latest edition of the Global Capital Confidence Barometer (CCB), global consultants EY stated that of the excutives survyed 77 percent expect the COVID-19 pandemic to have a severe impact on the global economy, while 25 percent think it will have a significant effect on the local economy.

There is a general acknowledgement that the impact will vary by region and sector.

When asked about the local economy, overall half of MENA respondents agree that the pandemic will have a minor impact on profitability and margins.

While 35  percent of UAE executives and 32 percent of Saudi executives are bracing for a significant negative impact, in Egypt, only one-fifth anticipate a severe impact locally, while one-third expect it to have no impact at all.

M&A Activity

In the immediate term, MENA executives in the region expect a slowdown in conventional M&A activity as companies focus on shoring up liquidity, driving cost efficiencies and, preserving value. However, the pandemic and lower oil prices are expected to accelerate consolidation across sectors and sale of non-core businesses held by merchant families. 

Across the region, 54 percent of MENA executives say they plan to actively pursue M&A in the next 12 months, only slightly lower than six months ago.

In the UAE, intentions are actually higher, with 56% looking to pursue M&A in the next year, versus 45% in October 2019. Conversely, in KSA, intentions are down from 63% six months ago to 57 percent in this survey.

Executives in Egypt have lowered their M&A expectations. With 49 percent expecting to be active in the M&A market, deal intentions remain higher than the long-term average of 39 percent.

Of the MENA companies surveyed, 45 percent will use M&A to strengthen their resilience and position for recovery through bolt-on acquisitions and 30 percent for transformative deals that could fundamentally reshape their business. Others that are less well-capitalized may find themselves forced to raise capital though divestments, either through full-enterprise sales processes or sale of minority stakes.

Anil Menon, MENA M&A and Equity Capital Markets Leader, EY, concludes: “COVID-19 is a great reset that will provide amazing acquisition opportunities. Sovereigns, large merchant families and corporations are aggressively looking at tactical buying opportunities. The established totems of capital allocation will be re-examined as many companies with weak business models curate capital sources and structure to weather the pandemic. We expect consolidation, distress M&A, and accelerated digitization to drive deal volumes.”

M&A activity in GCC region will gain pace amid COVID-19, according to KPMG.

M&A activity in Saudi Arabia and other Gulf countries are expected to increase amid COVID-19 pandemic as small and medium enterprises (SMEs), and several large corporates will  look for equity via capital injections to satisfy working capital needs, according to Ali Maabereh, Head of M&A at KPMG in Saudi Arabia.

"The current pandemic is creating a lot of uncertainties and contradictions in what to expect after the dust settles. The expected key impacts on companies are shortages of liquidity and working capital requirements. Though companies might be running a healthy P&L, there will be significant pressure on working capital requirements," Maabereh said.

“Deal making going forward will favour buyers, but such assumptions are heavily dependent on investors being bullish in seizing investment opportunities,” he added.

(Writing by Seban Scaria seban.scaria@refinitiv.com, editing by Daniel Luiz)

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