The UAE recorded the highest inbound investment in the Middle East and North Africa region, with 20 deals amounting to $14.4 billion in first half 2019, helped by mega deals involving oil giant Adnoc and ride-hailing firm Careem.
The oil and gas sector was the top target sector for inbound activity, accounting for $10.8 billion. Four out of the six inbound deals in the sector were in the UAE, including three mega deals, involving Adnoc's stake sale in its oil refining and pipeline business.
The Mena region witnessed 65 outbound M&A deals amounting to $21 billion in 2019 first half compared with 77 deals valued at $18.2 billion a year ago. "Strategic investments by sovereign wealth funds and state-owned enterprises, including mega deals by Adia and Saudi Aramco, drove the Mena outbound activity," said EY.
In volume, the first six-month period marked a fall in inbound M&A deals, with 40 deals amounting to $15.1 billion compared with 69 deals recorded at a value of $12.3 billion a year ago.
"The large sums of inbound M&A reinforces the Mena investment thesis. We continue to believe that these are good times for strategic acquisitions in Mena," said Anil Menon, Mena M&A and equity capital markets leader. Across the Mena, the value of M&A deals in the jumped 221 per cent to $115.5 billion in the first half, up from $36 billion in the same 2018 period, driven by Saudi Aramco's landmark deal.
However, the number of deals declined by 10.7 per cent, with 216 announced deals in the first half 2019, down from 242 deals recorded year-on-year.
Saudi Aramco's deal to acquire a 70 per cent stake in Sabic worth $69.1 billion from Saudi Public Investment Fund has been the most outstanding of all deals thank to its stupendous size.
State-owned entities were involved in 55 deals (25 per cent of total deals) amounting to $104.5 billion, 90 per cent of the total deal value, including mega deals involving Saudi Aramco, and the UAE's Adnoc and Adia.
"Mena corporates are finding innovative ways to raise capital and have stepped up the frequency of their portfolio reviews," said Matthew Benson, Mena transaction advisory services leader.
The top five target sectors by deal value included the chemicals sector, which had the highest deal value with $69.3 billion due to the landmark Saudi Aramco-Sabic deal, followed by the oil and gas sector with $14.2 billion. The provider care sector recorded $10.3 billion, the banking and capital markets sector recorded $5.1 billion in deal value, followed by the technology sector, which logged a deal value of $4.3 billion, which included Uber's $3.1 billion acquisition of Careem Networks.
In the first half 2019, there was an increase in domestic M&A activity in terms of deal value, with 111 deals amounting to $79.3 billion, compared with 96 deals amounting to $5.5 billion in same 2018 period.
"Two mega strategic deals, as part of sector consolidation, drove the domestic activity by value - a chemicals sector deal in Saudi Arabia and a deal in the banking and capital markets sector in the UAE, worth $4 billion," said the report.
The EY Capital Confidence Barometer report indicates that 61 per cent of executives say their companies are reviewing their portfolios every quarter or more frequently - more often than global executives. With more frequent portfolio reviews, several non-core businesses are set aside for divestment thereby fuelling deal activity.
"A further 87 per cent of executives in the region believe the global economy is improving, compared to 93 per cent on average across all executives in the study, globally, while 82 per cent share a similar sentiment about their domestic economy. Looking ahead, we expect Mena companies to continue to reshape their portfolios to remain resilient to potential headwinds on the horizon, even as they actively pursue their ambitious growth objectives," said Benson.
"Mena executives are relatively more optimistic about the improving economic prospects while still keeping an eye on evolving geopolitical risks. The EY CCB report found that Mena executives are proactively pursuing strategic options to strengthen competitive advantage and accelerate growth in an era where technology continues to disrupt traditional business models," said Menon.
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