The Middle Eastern region has defied global economic uncertainty to deliver some landmark deals in 2020. A total deal value of US$62.6 billion announced in the first three quarters of the year has already exceeded all total annual M&A values since 2006—with the exception of 2019, which achieved a record deal value following the announcement of Saudi Aramco’s US$69.1 billion blockbuster acquisition of SABIC.
Indeed, three megadeals have already changed hands in 2020—the highest number on Mergermarket record.
Yet despite the confidence displayed within the top-end of the market, overall dealmaking has shown signs of trouble, with volume dropping to its lowest for any Q1-Q3 period since 2009. There were 116 deals announced in the first three quarters of 2020, a 34% decrease compared to the same period the year before.
This trend is in line with the global M&A picture, which dropped 28% by value and 27% by volume year on year, as ongoing COVID uncertainty and economic turmoil dampened dealmaker plans.
UAE’s energy sector is open for business
Much of this robust activity in the top end of the market was in the United Arab Emirates’ energy sector. This sector is currently undergoing a rapid transformation under the UAE’s Energy Strategy 2050, as the government looks to diversify the country’s energy mix and reduce its reliance on carbon-intensive energy sources.
Indeed, the largest deal of the year—the US$20.3 billion takeover of Abu Dhabi National Energy (TAQA) by Abu Dhabi Power Corporation (ADPower)—was motivated by a desire to align with the strategy.
The region’s second-largest deal of the year also took place within the UAE’s energy sector: Abu Dhabi National Oil Company (ADNOC)’s sale of its 49% stake in its pipeline assets to a consortium of investors, valued at US$10.1 billion.
The deal marks a significant bet by international investors in the UAE’s energy sector. “By completing this landmark transaction, we are sending a very strong signal to other potential partners from around the world, that ADNOC continues to be open and in fact, very ready for business,” Sultan al-Jaber, chief executive officer of ADNOC Group and UAE’s minister of state, said in a statement.
These two deals helped to ensure that the energy, mining and utilities sector attracted the highest total deal value in the Middle East region so far this year, with US$32.5 billion in deals announced representing a 126% increase on the same period the year before. This is despite the fact that volume dropped from 17 deals to only 9 over the same period—highlighting how activity was skewed towards the top-end of the market.
Financial services dealmaking heats up
The financial services sector generated the second-largest deal value across sectors, with a total of US$12.1 billion announced in the first three quarters of 2020—a 110% rise compared to the same period the previous year. Deal volume over the same period also registered a yearly increase, from 10 to 14 deals.
Much of this total deal value was due to the Kuwait Finance House (KFH)'s US$9.8 billion pending bid for Ahli United Bank, headquartered in Bahrain. The combined entity will create the Gulf’s sixth-biggest lender, with an estimated US$100 billion in assets. Achieving KFH’s digital transformation strategy was cited as a key driver of the deal, as the bank looks to improve innovation in its digital services and banking products.
The deal, announced in March, is awaiting shareholder and regulatory approvals. While the completion of the deal was postponed due to COVID uncertainty, it is now expected in December.
The fourth quarter has already seen another significant financial services transaction: Saudi Arabia’s largest bank National Commercial Bank’s acquisition of smaller rival Samba Financial Group for US$15.2 billion, announced in October.
The transaction, currently awaiting approval by regulators and shareholders, would create the Middle East’s third-largest lender, with more than US$200 billion in assets. The NCB chairman has stated that the purpose of the acquisition is to fulfil Saudi Arabia’s Vision 2030 goals, which aims to strengthen the country’s financial services sector in an attempt to reduce the economy’s reliance on oil production.
TMT driven by Israel interest
The TMT sector continues to generate the highest number of deals across all sectors, with a total of 37 transactions taking place in the first three quarters of 2020. Yet, in line with global activity, this represents a 31% drop compared to the same period the year before, as COVID concerns resulted in a more cautious approach to dealmaking.
Yet despite a challenging year, there remain bright spots for M&A within the region. Israel’s prized tech startup firms, for example, have continued to attract attention despite the global economic downturn. In fact, the top four TMT deals of the year targeting the Middle East all saw buyers snap up Israeli startup talent.
The region’s biggest TMT deal of the year so far was the US$1.2 billion sale of Israeli cybersecurity firm Checkmarx to US-based PE firms TPG Capital and Hellman & Friedman. The COVID pandemic has exacerbated the need for effective cybersecurity solutions. With the global population carrying out more everyday tasks online, cyber attackers have increased opportunities to exploit vulnerabilities. As a result, investment in innovative cybersecurity solutions is likely to accelerate well into 2021.
The slowdown in the volume of deals targeting Middle Eastern firms in the first three quarters of 2020 was to be expected, given the impact the COVID pandemic had on global markets and dealmaker confidence. Yet the landmark deals that continued to take place in the energy, financial services and TMT sectors highlight the enduring appeal of the region’s assets, despite the global economic downturn.
As companies now look to 2021, much remains uncertain. The shape and pace of a much-anticipated global economic recovery will be vital in shaping M&A prospects. And news of a global vaccine has given hope to many. Once the dust has settled post-crisis, dealmaking within the region will likely grow in confidence.