According to a report from Lumina Capital Advisers, a leading corporate finance advisory firm, Gulf Council Cooperation (GCC) countries are witnessing more mergers and acquisitions (M&A) involving investors from the United Kingdom (UK).
Surveying senior dealmakers and UK investors, the report revealed that 80 percent of respondents have either executed or are in the process of executing an M&A deal in the GCC in the past year.
Moreover, approximately 40 percent of investors set their sights on inbound transactions in the Middle East over the next 18 months, with an additional 19 percent exploring outbound opportunities.
The study also highlighted a substantial increase in the size of transactions. From 2019’s less than $100 million, the average value of deals is now near $250 million.
“Deal sizes are increasing significantly. There is a marked increase in the use of debt, primarily driven by the access of sovereign wealth funds and quasi-government entities. However, the availability of such financing remains limited for private transactions,” shared Andrew Nichol, a partner at Lumina. He specifically reported that since 2019, he has seen a 112 percent increase in inbound interest.
Deals with Saudi and the UAE
As noted in the report, UK investors consider the United Arab Emirates (UAE) and Saudi Arabia as important regional hubs.
“We are witnessing a distinct trend of internationals seeking regional access through joint ventures, partnerships, and capabilities, with a pronounced focus on Saudi Arabia,” Nichol said.
He also underscored that “the UAE plays a crucial role in sculpting the regional landscape, actively forming regional champions through consolidation acquisition strategies executed at a federal level.”
In August, for example, Saudi-based Nesma & Partners signed an agreement to acquire Kent. Kent is a London-listed global energy services provider and a $1.4 billion revenue business. In the same month, UAE-based PureHealth inked a $1.2 billion agreement to acquire Circle Health Group, the largest independent operator of hospitals in the UK.
Earlier in May, the Royal Commission for Riyadh City inaugurated the Reigate Grammar School in Riyadh. This UK-based educational institution has a history dating back to 1675.
Saudi Arabia, with its $900 billion infrastructure spending plan, is another major sector attracting attention.
As for funding options, equity continues to be the top choice. About 76 percent of the surveyed investors revealed that this is their preferred method for acquisitions. Meanwhile, 44 percent shared that they are relying on debt financing as a source of capital for transactions.
Amid growing interest in GCC, the Lumina report noted that there are still ongoing challenges that firms take into account. These include varied timeframes. In the GCC, deal timings are typically longer — 12 to 18 months compared to the UK and Europe’s 6 to 9 months.
M&A boom in the region
The newest Lumina survey supports an earlier report from PwC Middle East. According to the document, the Middle East witnessed substantial M&A activity in 2022, exceeding the $1 billion mark across diverse industries.
Last year, the majority of the transactions were concentrated in key economies such as the UAE, Saudi Arabia, and Egypt. They collectively accounted for 563 deals, representing 89 percent of the region’s total deal volume.
Both the UAE and Saudi Arabia experienced a substantial year-on-year increase in deal volumes. The two countries recorded growth rates of 9 percent and 6 percent, respectively.
“The Middle East is certainly not immune to the economic headwinds affecting M&A elsewhere, but at the start of 2023, the mood here is more optimistic than most global markets and some momentum from last year has continued into 2023,” commented Romil Radia. He is the regional deals markets leader at PwC Middle East.
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