Environmental considerations will continue to motivate an increasing number of merger and acquisition deals in the Middle East next year, following a vibrant 2022 that recorded a total deal value of $23.8 billion.
In the first three quarters of 2022, there were 283 deals, an increase of 16 per cent from the same period last year.
Despite unfavorable macroeconomic conditions, 2022 saw M&A activities returning to pre-pandemic levels with ‘green’ M&A deals continuing to surge with dealmakers recognizing the value-creating potential of such transactions. Green deals increased from 5.0 per cent in 2020 to 10.3 per cent in 2021, according to Boston Consulting Group’s M&A report.
According to the latest EY Mena M&A Insights report, the region witnessed 524 deals worth $55.2b during the first nine months of 2022, despite rising inflationary pressures, dampening economic demand, and global market disruptions. Domestic deals were the main driver of activity in the region, contributing 51 per cent and 33 per cent of the total M&A deal volume and value respectively over the nine-month period.
The UAE remained at the forefront of the region, with 155 deals signed worth $17.2 billion in the first nine months of 2022. This was followed by Egypt with 99 deals worth $3.9 billion, Saudi Arabia with 58 deals worth $3.4 billion, Morocco with 22 deals worth $1.9 billion and Oman, where 10 deals have been inked with a total value of $0.7 billion.
Green M&A has been growing particularly quickly in industries that are at the forefront of the energy transition and in emerging markets, with the Middle East showing the highest level of green activity globally, BCG report said.
“Green deals are very hot in the region. Soaring sustainability transactions in the Middle East are a clear outcome of established national transformation programs seeking out diverse economic outputs for countries on their path to net zero,” said Ihab Khalil, managing director, and Senior Partner, BCG. “As the region continues grounding itself as a hub where collaboration and diversification can bear fruit, so will green mergers and acquisitions.”
BCG’s analysis revealed a clear upward trend in ‘green’-related deals over the past decade, with the strongest acceleration occurring in 2021 when Middle East deal volumes nearly doubled to 10.3 per cent following two softer years for broader M&A activity and green transactions.
Over the past ten years, the energy and utilities industry had the highest share of green M&A and the largest increase, showing a 98 per cent increase in deals from 2020-2021, contributing to 10 per cent of M&A deals in the Middle East in 2021. Asia-Pacific (especially China) was the second-most active region, with a green deal share of approximately 8.0 per cent in 2021.
“Though the Middle East is seeking out net zero solutions to power its economy, it is not letting go of the stream of energy and power,” said Ronald Maalouf, managing director, and partner, BCG. “On the contrary, increasing ventures in hydrogen will surely position the region not only as a reliable sustainable center of energy supply but as a leader in that segment capable of powering an even greater number of mergers and acquisitions across the board. With COP28 scheduled in the United Arab Emirates, we expect more attention to be drawn to the region’s green portfolio to spearhead global sustainable development goals to success,” said Maalouf.
BCG’s analysis disclosed that despite the substantial premium they often command, green deals globally generally create more value than non-green deals upon announcement and over the ensuing two years.
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