Middle East M&A deal values quadruple in first half outpacing global average

UAE top target country for inbound investment and top spender for outbound deals

The Aramco-Sabic transaction is a "significant leap forward” for Saudi Aramco’s downstream strategy, Aramco president and chief executive, Amin Nasser said. Reuters

The value of merger and acquisition deals in the Middle East quadrupled in the first half of 2019, driven by domestic transactions as global trade tensions and economic uncertainty spurred companies to expand at home.

The total value of transactions involving the Middle East jumped to $104.4 billion (Dh383.4bn) in the first six months of the year, up from $19.86bn in the same period last year, according to a report by law firm Baker McKenzie. However, the number of transactions dipped 3 per cent year-on-year, to 233.

"The Middle East market has been ... driven by companies pursuing a few large transformative deals, rather than many small transactions," said Karim Nassar, a Riyadh-based corporate lawyer with the firm. "Interestingly, domestic M&A in the Middle East has been booming this year, with economic uncertainty and strained trade relations across the globe likely influencing companies to build scale at home."

Domestic deal activity rose 10 per cent in volumes while deal values increased tenfold to $76.9bn.

Major deals in Saudi Arabia drove the Middle East's outperformance of global markets, especially on equity markets as the kingdom's inclusion into the MSCI emerging market index attracts billions of dollars in passive funds. For example, the $747m initial public offering of mall operator Arabian Centres Company in May was the country’s largest initial public offering since National Commercial Bank raised $6bn in 2014. Another mega-deal was Saudi Aramco’s acquisition of a majority stake in Sabic, the region's biggest petrochemicals producer.

Overall, the value of inbound cross-regional deals in the Middle East jumped to $13.9bn, from $8.2bn a year earlier though the number of deals fell 42 per cent to 38, the report said.

The UAE, the Arab world's second biggest economy, was the most attractive target country to global investors by both volume and value of deals, recording 29 deals valued at $13.3bn, according to Baker McKenzie.

The majority of inbound cross-regional deals were focused on the energy and power sector, with seven deals valued at $9.8bn. Technology deals ranked second by volume and value.

High value deals involving global buyers during the first six months included Abu Dhabi National Oil Company's sale of a 40 per cent stake in ADNOC Oil Pipelines for $4bn to BlackRock and KKR.

"The UAE has consistently featured as the most attractive target country for cross-regional M&A deals into the Middle East, and its recent reforms to facilitate foreign investment is likely to buoy the market,"  Omar Momany, UAE head of corporate/M&A at Baker McKenzie Habib Al Mulla, said.

Consolidation among companies in key sectors such as finance will continue to "gain momentum" across the region over the next few months and the tech sector remains "robust" as companies seeks to expand by acquiring digital-driven businesses, Mr Momany said.

Outbound cross-regional deals from the Middle East into other regions dropped by 39 per cent in value $4.6bn and by 17 per cent in volume to 88.

The UAE was the most active acquirer, with 34 deals amounting to $1.47bn invested in other regions.