Business executives optimistic of rebound to pre-Covid profitability by 2022

A large majority of business executives surveyed expect the Middle East to be a preferred investment destination that will generate the most growth and opportunities for their company in the next three years.

While 81 per cent of Mena executives anticipate growth and investment opportunities in the Middle East, 71 per cent of those surveyed expect to see revenues return to pre-pandemic levels by 2022 or earlier and 69 per cent anticipate a return to normalised profitability within the same timeframe, according to the latest edition of the EY Global Capital Confidence Barometer (CCB).

Most companies feel satisfied with their performance during the crisis though 90 per cent of respondents experienced a decline in revenue due to the Covid-19 pandemic, said CCB report.

Almost all executives (98 per cent) conducted a comprehensive strategy and portfolio review, and they plan to focus on investing in customer-centric digital and technology capabilities.

Mergers and acquisitions (M&A) will be the preferred strategic option as companies look to accelerate growth in the post-pandemic world, with 37 per cent of Mena companies planning to actively acquire in the next 12 months.

“Mena corporates remain nimble and resilient with executives finding that the current circumstances present a unique time for M&A, with several sectors ripe for consolidation,” said Matthew Benson, EY Mena strategy and transactions leader.

“In 2020, M&A activity was largely led by government-related entities and the transformation of national oil companies Aramco and Adnoc, as well as the investment strategies of ADQ and PIF. This is in line with the general trend toward increase privatization related to key infrastructure assets such as electricity, aviation, and housing. However, there is also a strong pipeline of interesting mid-market opportunities, largely driven by sellers’ needs to raise capital,” said Benson.

About 76 per cent of Mena companies plan to increase investments in technology and digital to support their transformations, while 64 per cent will focus more on innovation.

When asked about their primary planned M&A activity, 84 per cent of Mena respondents said they plan to invest in bolt-on acquisitions – smaller acquisitions in the same sector that will increase market share. In addition, 55 per cent of those who plan to acquire are looking for assets domestically rather than internationally, while 94 per cent of executives expect greater competition for assets, with much of the competition expected to be from private capital in the Mena region.

The top five investment destinations in the Mena region, including both domestic and cross-border M&A activities, are Saudi Arabia, the UAE, Kuwait, and Oman, with Egypt listed as the fifth destination.

The report found that 87 per cent of Mena companies are undertaking substantial business and technology transformations to stay relevant and accelerate growth.

Respondents cited a specific focus on accelerated digitization of customer journeys and business processes as their most important strategic action for growth. Furthermore, they are looking for digital solutions that can help them increase customer interactions, and technology and automation that can reduce labor costs and increase scalability to drive increased profit margins.

The segments most likely to actively pursue acquisitions in the next 12 months are automotive and transportation (45 per cent), advanced manufacturing (41 per cent), financial services (39 per cent), real estate and construction (36 per cent, and oil and gas (28 per cent).Anil Menon, EY Mena M&A and equity capital markets leader, said a vast majority of Mena respondents shared that the pandemic led to a reassessment of their M&A strategy and rebalancing of their portfolio. “Moreover, when surveying a target for acquisition, companies are not only considering overall resilience, but digital strategy and technology alignment. Many corporations have accepted the pandemic fallout as an opportunity to grow market share and increase speed to market to meet the fluid and dynamic business environment.”

— issacjohn@khaleejtimes.com