Increasing Activity

Georges Massoud Head of M&A for the MENA region at JP Morgan tells MEA Finance that M&A will continue on its growth path, remaining important to the development shareholder value and regional capital markets, as well as attracting talent from around the world as many business sectors such as technology, expect a surge in activity

M&A deal value for the Middle East in FY 2021 grew nearly 60% over the previous year. Can growth in the regional M&A market be sustained?

The current trends in Middle East M&A have clearly demonstrated a shift in the market dynamics. Although governmentsponsored deals still represent a considerable part of the total deal flow, we have recently witnessed large corporate transactions as well as a strong surge in public M&A deals which have been reshaping the market. The increase in FY 2021 was partially driven by a strong global macro-economic backdrop from the Covid 19 pandemic. That being said, the Middle East M&A market has been steadily growing over the past few years and is expected to continue in that trajectory in the long run driven by: strong government privatization and investment programs, growing economies and developing sectors (technology, etc.) and a constantly are about to reach a relevant scale for M&A to become a more natural route for expansion.

Georges Massoud, Head of M&A for the MENA region, JP Morgan

evolving public market supported by ambitious initiatives (SPACs, etc.). M&A is becoming a regular topic of discussion during board meetings and is now more commonly used in the region as a tool to enhance shareholder value creation. Additionally, there are many companies in the region that have just reached, or

Will current M&A activity contribute to the long-term growth of the region’s capital markets?

Public M&A transactions have been on a continuous rise in the Middle East region. Saudi Arabia and the UAE have been leading the way over the past couple of years, however other markets such as Qatar and Egypt have also had their fair share in terms of market activity. Recent public transactions have been an important contributor to the development of the regional capital markets as they are now being used as blueprints for future transactions. Using publicly traded shares as a currency for transformative acquisitions is certainly a tool regional companies have become accustomed to use. We increasingly see regional companies exploring M&A as a tool for growth and value creation, before targeting an initial public offering.

Shareholders look for capital markets to monetize part of their shareholding or further fuel the growth potential of the company through new sources of funding.

Is there an increase in overseas M&A talent and expertise moving into the region’s financial centres?

The Middle East has been one of the fastest growing regions from an M&A standpoint which has certainly helped attract talent from all over the world. Many financial institutions have been expanding their local capabilities by increasing their on-the-ground presence. Regulators are also encouraging financial institutions to expand their local teams, which clients also want to see as they continue to favour faceto-face meetings and interactions. The M&A activity in the region, and the evolving nature and complexity of the transactions, has certainly encouraged many individuals to consider a relocation to the Middle East. Local talent has also been an important contributor to the development of M&A in the region as we see more interest from young graduates to join the analyst programs and internship opportunities offered by banks regionally.

In deal values terms, how does cross-regional M&A activity currently compare with intraregional activity?

According to Dealogic, cross-border transactions represented between 40-50% of the total announced deal value for MENA M&A transactions over the past five years. This is not surprising given the longstanding diversification strategy of Sovereign Wealth Funds into global assets, and more recently the flow of activity from international bluechip investors who are continuously seeking quality assets in the region. International private equities have been more active in the Middle East region in the past few years as witnessed by the various new entrants in the market. Cross-regional activity is expected to continue its contribution to the M&A deal flow as companies continue to attract international interest, particularly companies who have demonstrated their ability to deliver sustainable returns and to quickly adapt to difficult market environments as witnessed during the financial crisis, and more recently the low oil price environment.

Which industry sectors are experiencing the most M&A activity in the region?

Unsurprisingly oil & gas, chemicals (particularly with the Aramco/SABIC deal) and banking represent more than 50% of the total announced deal value for MENA M&A transactions over the past 5 years (according to Dealogic).

Whereas sectors such as transportation, TMT and utilities constitute the second largest component representing more than 25% of the total announced deal value. Over the past few years, real estate, consumer and healthcare have become more active on the M&A front, as regional companies are now scalable and are starting to look more seriously for shareholder value creation through expansion opportunities. Certain regional themes have also played an important role in shaping the M&A landscape such as food security and global trade, particularly in the GCC. Finally, the technology sector is now more visible on the M&A front as it witnesses continued success in capital raising activity and is expected to continue its surge as we see more unicorns from the MENA region. Venture capitalists have played an important role in helping develop the regional start-ups and will continue to do so as these companies start exploring various options for growth and consolidation.

Is the regional banking sector ripe for increased M&A activity?

The banking sector has been one of the most active in terms of M&A activity over the past five years. With stricter regulatory requirements and a more challenging market environment, banks have relied on consolidation to increase their scale and become more competitive. Saudi Arabia, the UAE

and Qatar have seen several sizeable bank mergers and acquisitions reshape their local landscape over the past few years. We believe there is still room for further consolidation given that many of the local jurisdictions remain quite fragmented, additionally there is an increasing appetite for cross-border acquisitions which we expect will also play an important role in reshaping the regional dynamics. Beyond conventional banking, we also see digital banking and financial technology play a critical role in driving M&A activity, particularly as these segments continue to showcase the need to invest in technology and explore new avenues of growth.

WE INCREASINGLY SEE REGIONAL COMPANIES EXPLORING M&A AS A TOOL FOR GROWTH AND VALUE CREATION