Overall Middle East merger and acquisition deal values and volumes dropped year-on-year by around 58 per cent and 26 per cent respectively, in the first-half of 2020, despite an uptick in the months of May and June.
The regional decline in M&A deals is in line with the slump in global activity that saw total deal values dropping in the first six months by 41 per cent from H1 2019, according to the latest report by global law firm, Baker McKenzie.
Sovereign wealth funds including Abu Dhabi's Mubadala, Adia, and Saudi Arabia's Public Investment Fund have been deploying billions of dollars to buy stakes in companies ranging from India's Jio platform, and facebook Inc, to Citigroup Inc. Adia bought 1.16 per cent in India's digital giant for $752 million, and Mubadala Investment invested $1.2 billion to buy a 1.85 per cent stake.
The value of M&A deals in the Gulf states, including proposed deals, is up tenfold so far in June compared with the same period last year, according to data compiled by Bloomberg. That volume stands up well against the 44 per cent drop globally this month, the data show.
According to a Bloomberg report, Abu Dhabi has been leading the region in the past two years in bringing in more international investors to some of its prized assets. The emirate's state-owned energy producer Abu Dhabi National Oil Company raised $10 billion by selling a stake in its natural-gas pipelines to a group of investors including Global Infrastructure Partners and Singapore's sovereign wealth fund.
Since embarking on a transformation plan, Adnoc has sold shares in its distribution unit and brought foreign investors into its refining and oil-field servicing arms. KKR & Co and BlackRock Inc agreed last year to invest $4 billion in Adnoc's oil pipelines.
Sovereign wealth funds including Saudi Arabia's Public Investment Fund are deploying billions of dollars to buy stakes in companies ranging from facebook Inc to Citigroup Inc to take advantage of a downturn in prices.
As for volume, Middle East M&A witnessed a decline in volume during the first half of 2020 with only 196 deals. The decline can be attributed to the volatility across markets around the world due to the global Covid-19 pandemic.
"Covid-19 has had a significant impact on M&As across the region," said Omar Momany, partner and head of the Corporate M&A Practice Group at Baker McKenzie Habib Al Mulla. "However, the dramatic increase in the value of deals made during the final two months of H1 2020 showcases a positive outlook and an early recovery sign for M&A activity for the remainder of the year. As the world begins to emerge from Covid-19, we can expect markets to begin to bounce back leading to more opportunities for investment, distressed M&As and consolidation within the region."
Cross-border M&A deal volumes and value both declined from H1 2019. The volume of activity fell from 163 to 132 and values decreased by 5.032 billion in comparison to H1 2019.
Cross-regional deal volumes also dipped in H1 2019 from the previous half year, but deal values increased by nearly a fourth, from $19.26 billion to $23.17 billion. The volume of deals into the Middle East ebbed slightly in H1 2020 from the previous half year, inbound deal values jumped from $13.848 billion to $15.753 billion in the same period.
In cross-border deal making, the US remained the top target and acquiring country by value and Hong Kong was the top Asian acquirer also based on value of deals. As for volume, India was the top target country with 10 deals followed by US with eight deals and United Kingdom four.
Energy & Power was the top target industry by value, with four deals valued at $10.1 billion in H1 2020, significantly higher than the value of High Technology, which ranked first in volume with nine deals valued at $193 million.
Outbound M&A activity from the Middle East into other regions dropped by volume but increased in value, from 103 deals valued at $5.421 billion in H1 2019 to 78 deals valued at $47.417 billion in H1 2020.
The US was the top target country for outbound deals in both volume and value, benefiting from 27 deals valued at $3.567 billion. Egypt was the second most popular target country by volume and value with 10 deals valued at $2.640 billion, while the United Kingdom ranked third by volume and value.
Industrials ranked at the top by volume for H1 2020, with 16 deals, closely followed by the real estate sector with 12 deals. The telecommunications industry led by value featuring announced megadeals such as the potential Vodafone Egypt Telecommun SAE/Saudi Telecom Co $2.392 billion deal.
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