Mergers and Acquisitions in the United Arab Emirates have experienced significant activity in recent years, with the country emerging as a top player in the Middle East. In 2022 alone, the UAE, along with Saudi Arabia and Egypt, accounted for 89% of the total deal volume in the region, showcasing its dominance in the M&A landscape. Sectors such as technology, energy, food processing, healthcare, and education have been the primary drivers of M&A deals, particularly in the form of Initial Public Offerings (IPOs).
Despite a global trend of slowing deal activity, the Middle East has witnessed a notable increase in M&A deals, defying the odds. This surge can be attributed to factors like advantageous regional dynamics, including higher oil prices and improved fiscal restraint. These elements have contributed to the region’s flexible economy and relatively faster growth, leading to an attractive environment for M&A transactions.
The GCC region, including the UAE, continues to be an appealing destination for M&A activity, thanks to favorable regional factors and a history of resilience. Despite increasing interest rates, the transactional activity in the region has not been significantly impacted. Buyers, including strategic investors, sovereign wealth funds, and financial sponsors, are in high demand. However, there is now a greater emphasis on value creation and integration synergies.
In the mid-segment of the M&A spectrum, family groups, corporate entities, sovereign wealth funds, and state-owned enterprises are prominent players. Sectoral consolidation, value chain expansions, and acquisitions aimed at enhancing capabilities drive this segment. While opportunities in this segment are plentiful in terms of volume, they often require more time and patience to materialize.
Comprehensive platforms serving customers along the entire value chain are being developed by businesses and sovereign wealth funds. This trend is evident in various industries, including retail, consumer goods, healthcare, logistics, technology, media, and telecommunications. Sovereign entities in the region are actively working to merge their operations to improve service quality and investment performance.
In the current environment of elevated interest rates, inflation, increased competition, consolidation efforts, and digitalization, stakeholders are paying closer attention to performance, returns, and value creation. As a result, portfolio, company, and investment assessments have become more rigorous, with a focus on revitalizing underperforming entities and boosting resilience. Restructuring is expected to play a significant role in driving growth and focusing on these priorities.
Tax considerations are crucial in the context of M&A transactions. In jurisdictions with developed tax regimes, the tax implications of a transaction or corporate restructuring are a priority. Failing to consider tax implications from the outset can be a costly oversight. In the UAE, companies must take into account the impact of deals on their financial statements, cash flows, and tax obligations. With the introduction of corporate tax and VAT, understanding the tax landscape is crucial for successful M&A transactions.
Although the overall value of M&A transactions in the MENA region experienced a decline in the first quarter of 2023, the UAE remained the top country in terms of M&A activity. The country recorded 42 deals worth $2B, followed by Saudi Arabia, Kuwait, Egypt, and Oman. While deal volumes decreased, the total value of M&A deals in the MENA region increased by 42% compared to the same period last year.
Despite challenges posed by declining oil prices, lower GDP per capita growth rates, and rising food inflation, the M&A market in the UAE and the wider MENA region continues to exhibit robust capital market confidence. Private equity and sovereign wealth funds play a significant role in driving M&A activity, representing a considerable portion of the total deal volume and value.
In conclusion, the UAE has emerged as a key player in the M&A landscape, with favorable regional dynamics and a resilient economy. While challenges exist, the country’s business-friendly policies, tax environment, and attractive sectors have made it an attractive destination for M&A activity. As the region continues to evolve, M&A deals are expected to play a crucial role in driving growth, enhancing market share, and facilitating sectoral transformations.
