Proving its resilience and ability to weather political headwinds, the Middle East region saw a particularly active year for M&A during 2022, with several deal-makers citing pre-pandemic levels of activity. Despite the threat of a recession, we believe this momentum will continue in 2023, with deal-making in the region over the next 12 months driven by a number of factors, including those discussed below.

M&A activity in 2022 was fuelled by sovereign wealth fund and government-related entity (GRE) investments, with neither showing any signs of slowing down. Deal activity in the energy and infrastructure sector is expected to continue with green and renewable investments leading the way, alongside investments in large infrastructure projects to support the development of smart cities and giga-projects. While investors will proceed with caution, given the prediction of a global economic slowdown, we expect cash-rich sovereigns and GREs to take advantage of depressed valuations and possible distressed assets over the next 18 months.

As companies look to embrace digitisation and undergo further technological transformation, technology-related M&A is expected to remain active throughout 2023. With several initiatives rolled out to support tech start-ups, the region is home to a number of technology companies and start-ups, which continue to receive increasing interest from foreign investors and will drive activity in the technology space.

The region’s increasing openness to foreign investment and recent legislative reforms, particularly in the key growth markets of the UAE and Saudi Arabia, will be another factor contributing to a buoyant M&A market. The reforms reduce barriers to foreign investments and improve regulatory processes, creating a more favourable environment for M&A activity and cultivating a thriving business environment.

There are also a number of uncertainties and hurdles that may impact regional M&A activity in 2023. The tax landscape in the region continues to evolve; several Gulf States have introduced VAT and the UAE is set to introduce corporate tax in 2023. The impact of tax legislation on deal-making and valuations is yet to be seen and will most likely only impact the market in the latter half of the year, or possibly not until early 2024.

The evolving global political instability and predicted recession may cause businesses to revisit investment strategies, which could stall investments currently in the early stages. However we expect the reset of valuations to play a major role in sparking M&A activity in late 2023.

Despite the evolving geopolitical landscape, holistically, we expect M&A activity in the Middle East to remain positive, with the region’s foreign investment liberation and economic reforms playing a key role in attracting investors. As cash-rich corporate and sovereign wealth funds continue to leverage their market position, the biggest sector gainers are likely to be energy and infrastructure, technology, and healthcare.

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