According to Bain & Company’s fifth annual Global Mergers & Acquisitions study, Middle Eastern sovereign wealth funds are employing mergers and acquisitions (M&A) to scale into new sectors and create local champions.
According to the study, the action will fortify relationships, make investments in the future, and support the area.
In 2022, regional M&A activity increased by about 39%, primarily due to government-owned sovereign wealth funds. Businesses also made 84% of transactions and sovereign wealth funds combined, with private equity investors participating in only a small number of transactions.
The study has also found that with a strong economy supported by high oil prices, the Middle East is well situated to rely on M&A to further the region’s long-term objective to diversify beyond hydrocarbons and globalise its enterprises.
With a predicted regional GDP increase of 6.5% (7.6% in Saudi Arabia), which is the highest in almost a decade, the local economy is performing well. The Middle Eastern sovereign wealth funds are also growing, and the recent government decree has ensured the transformation of these funds into a gold mine for the majority of M&A activity.
The Public Investment Fund (PIF) of Saudi Arabia would reportedly invest USD 1.3 billion in four Egyptian companies, including Alexandria Container and Cargo Handling and Abu Qir Fertilizers, in August 2022.
Private equity activity in the region, which fell by 36% in the first ten months of 2022, needs to increase. However, there are some signs that businesses preparing for IPOs, which are growing, have started to show renewed interest.
As seen by the partnerships, be it the ones between Etihad and Air Arabia or the tie-up between Saudi British Bank and HSBC Saudi Arabia, companies are purchasing firms or forming alliances to saturate regional markets in essential industries.
According to Bain & Company, regional businesses are expanding abroad through cross-border M&A or foreign investments. Abu Dhabi’s FAB merged its Egyptian operations with Bank Audi Egypt to create one of Egypt’s largest banks.
Bain & Company said, “In the years to come, we anticipate that more international companies will investigate the cross-border opportunities of partnering with sovereign wealth funds and local governments to create new sectors through joint ventures.”