PwC: 6% increase in M&A activity in Mideast in 2020

DEAL makers throughout the Middle East are adapting rapidly to the COVID-19 crisis, according to PwC’ third TransAct report

While the COVID-19 pandemic severely curbed merger and acquisition (M A) activity in the Middle East, dealmakers throughout the region adapted rapidly and imaginatively to the crisis, according to PwC Middle East’s third TransAct report.

Entitled A Renewed Search for Value as Confidence Begins to Recover’, the report was launched on Tuesday.

Moving on from the COVID-19 crisis, businesses across the globe are reviewing their strategic capital allocation and assessing what their core business should look like moving forward. In this context, the report anticipates the following themes to drive Middle East deal making over the coming two years

Focus on value preservation Consolidation of operations and divestment of non-core assets, in line with the global emphasis on repairing and reconfiguring businesses. Government-led recovery Strategic public investment to stimulate economies, with accelerated privatisation programmes, especially in infrastructure and utilities. Technology will be key Further integration of new, digital technologies into core sectors. Opportunistic deals Liquidity in the market will enable investors to acquire distressed assets in newer sectors including tech-based start-ups, facilitating portfolio diversification. Localisation Continuing supply chain disruption, particularly in food and agricultural products, will intensify the focus on reducing dependence on imports. Environmental, Social, and Governance (ESG) focus We expect to see an increasing awareness and impact of ESG re ected in dealmaking as ESG focus is built into the core of organisations and investment decisions are also considered through an ESG lens.

Romil Radia, Middle East Valuations Leader and Regional Deals Markets Leader at PwC Middle East, said, “We are living in a new normal where businesses have to rethink their strategies and navigate the uncertainty. It is important that they remain agile and re-evaluate their strategy since deals can no longer be put on hold. The COVID-19 pandemic will continue to force businesses across many sectors to restructure and transform their operations in the years to come. However, whilst it remains essential for deal makers to factor in the current, uncertain environment, companies and investors should also view M A as an opportunity to achieve their strategic objectives and it may be the best or fastest way to fill in gaps, for example, in technologies or resources.”

Worldwide, deal volumes for completed deals fell by 9 for 2020 compared to last year, as the pandemic delayed or halted transactions particularly in H1 of 2020. M A activity in the Middle East, however, saw a marginal increase of in 2020 compared to prior year. Overall, 2 deals were completed in 2020 in the region, compared with 221 for 2019. More than half (117) of these deals were valued at less than $100m, based on the 1 deals with disclosed values, with six deals worth more than $1bn.The report highlights several M A trends which preceded the pandemic and have been reinforced by Covid-19. Additionally, the report talks about how the market disruption caused by the pandemic has opened up new areas for deal makers to explore.

Locally, Qatar has also seen an uptick in deal activity driven by the global and regional M A dynamics during the COVID-19 pandemic. Moreover, investors in Qatar have also been strategically looking at outbound investments to unlock new markets and diversify supply chain reliance.

Kamal Fayed, Deals Partner at PwC Qatar, said “We expect to see a number of key themes shaping the Qatari M A landscape in the near term, including the reallocation of capital across both public and private sectors, and the restructuring and or digital transformation of certain businesses which has become critical in the wake of COVID-19. We should also expect more consolidation plays extending across a range of sectors, in particular those hit hard by COVID-19 where players will seek to create value through M A. The recent merger of Masraf Al Rayan and Al Khaliji Bank, for example, will likely be followed by a number of other mergers in the short to medium term.

“We have also witnessed a great drive towards localisation with government organisations, including ministries, public-private partnerships (PPPs), and state-owned enterprises supporting investments in local capabilities.”