In a surprising turn of events, the global merger and acquisition (M&A) market experienced a 15 percent year-on-year decline to $3.2 trillion in 2023. According to the Bain & Co. annual report, M&As reached their lowest point in a decade. This downturn was attributed to various obstacles, including high-interest rates, intensified regulatory scrutiny, and mixed macroeconomic signals.
Tech M&As take a hit
A pivotal factor in the decline of M&As was the 45 percent drop in tech deal values. This contributed to a wait-and-see atmosphere as sellers hesitated to engage at a market bottom. Meanwhile, median valuations across industries plummeted from 25 times in 2021 to 13 times in 2023. However, the energy and healthcare sectors defied the downward M&A trend, having a strong year driven by sector-specific dynamics and big-ticket deals. Despite the decrease, mega M&A deals predominantly occurred in the second half of 2023. This signals a potential shift in the outlook of dealmakers. Hence, companies maintained high levels of proactive deal screening and due diligence.
However, an evolving regulatory climate posed challenges for the M&A market. At least $361 billion in announced deals faced regulatory hurdles globally in the past two years. The average time to reach a regulatory outcome for scrutinized deals is now 12 months, adding complexity to deal planning
AI in dealmaking
Looking ahead, the Bain & Co. annual report anticipates a significant role for generative artificial intelligence (GenAI) in M&A dealmaking. While only 16 percent of M&As currently use generative AI, a Bain & Co. survey reports that 80 percent anticipate adopting it within the next three years. Moreover, early users have found the technology efficient in generating ideas and reviewing data, although challenges related to data accuracy, privacy, and cybersecurity remain.
Middle East M&A market proves resilient
Meanwhile, a Norton Rose Fullbright analysis reveals that despite challenging global economic and geopolitical conditions, the Middle East M&A market showcased resilience in 2023. Both intra-regional and cross-border international transactions played major roles in driving that resilience. The standout performers in the dynamic M&A landscape were regional sovereign wealth funds (SWFs) and government-related entities (GREs), marking a continued shift away from hydrocarbon dependence.
Technology, including AI, fintech, healthcare, renewable energy, and agribusiness also emerged as the primary sectors witnessing substantial growth and investment. Moreover, SWFs and GREs led the charge, expanding their global reach of investments, particularly in alternative investments, diversifying their portfolios, and contributing to the region’s economic transformation.
M&A indicators for 2024
As 2024 approaches, indicators suggest a continuation of the robust M&A activity witnessed in 2023 in the Middle East. New investment platforms are expected to drive increased M&A deal flow. Besides, SWFs and GREs aim to utilize these platforms to expand their global reach, particularly in alternative investments, showcasing a strategic evolution in their investment approach.
Inbound investment
Inbound investments are expected to be active as Middle Eastern governments focus on developing energy infrastructure, leisure, and tourism assets. Joint venture arrangements and M&As are likely, with incoming partners providing critical technology or expertise. Moreover, the legal and regulatory framework supports Middle East-registered Special Purpose Vehicles (SPVs) used for both regional and outbound investments.
Read: IMF lifts 2024 global growth outlook
M&A industry outlook
The Bain & Co. report delves into industry-specific trends, highlighting that healthcare and life sciences will remain active due to high levels of cash reserves and executive confidence. Meanwhile, energy and natural resources companies will take a more targeted approach to energy transition acquisitions. Moreover, the space industry, closing multibillion-dollar deals in 2023, is anticipated to continue its growth trajectory.
Meanwhile, the outlook for Middle East M&A in 2024 is optimistic, building on the resilience demonstrated in 2023. SWFs and GREs will play a pivotal role in a diverse range of deals, with renewables, technology, healthcare, and infrastructure taking center stage in the investment landscape. The region’s continued integration into global M&A trends positions it as a key player in the evolving international business landscape.
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