Resilience in the Middle East boosts M&A potential in 2024

The Middle East M&A market, both intra-regional and cross-border international M&A, has once again proved its resilience in 2023 in the face of challenging global economic and geopolitical conditions. As with previous years, the charge was led by regional sovereign wealth funds (SWFs) and government related entities (GREs) who continued to diversify away from a dependence on hydrocarbons. Technology (including AI), fintech, healthcare, renewable energy and agribusiness were sectors that saw the most growth and investment.

The indicators for 2024 are pointing towards much of the same activity seen in 2023 but with the potential for increased deal flow led by new investment platforms, launched or announced in late 2023/early 2024, from which SWFs and GREs intend to use to expand their global reach of investments, particularly in alternative investments. 

Broader reach of investments

In the past few years, SWFs and GREs have been actively pursuing broader, and in some cases, more high profile, investments in sectors such as infrastructure and renewable energy, taking significant stakes in key assets in developed economies. It is likely that this trend will continue particularly as the geo-political landscape continues to shape deal flow and is expected to bolster oil prices. Opportunities will inevitably present in economies which are battling the headwinds of conflict, inflation, interest rates and geopolitical uncertainties. There is evidence that a number of governments are actively canvassing SWFs and GREs in the Middle East to invest in domestic assets and projects, with the aim of plugging the shortfall that such governments are unable to fill through their own resources or from elsewhere. Such outbound (that is global, cross border) M&A will likely be a growing trend.

In addition, we expect to see continued and expanded investments into fintech, technology, AI, healthcare, renewable energy, agribusiness and nuclear.  Environmental, social and governance (ESG) and sustainability are likely to be an increasingly important element of M&A activity in the region as the UAE, in particular, builds on the commitments made during COP 28 held in Dubai in late 2023. This has already been indicated following one of the early announcements from COP 28 regarding the launch of a USD30bn climate fund to invest in various ESG interests. 

Inbound investment and appealing legal and regulatory regime 

Inbound investment is also likely to be active as Middle East governments look to develop energy infrastructure, leisure and tourism assets. Such investments often are in the form of joint venture arrangements where the incoming joint venture partners provide critical or cutting-edge technology or expertise. 

The legal and regulatory framework in the Middle East has imported many of the principles established in British and American legal and regulatory regimes and consequently an increasing number of Middle East registered SPVs are being used as vehicles for investment both in the region and outbound. Where M&A transactions are backed by warranty and indemnity insurance, the London insurance market has been fairly active on (and receptive to) such transactions and we expect this trend to continue in 2024.  

Outlook

Overall, the outlook for Middle East regional and outward-bound M&A looks positive against the background of a slightly subdued 2023 compared with expectations. SWFs and GREs are expected to make a significant contribution to a broad array of M&A deals in 2024, with renewables, technology, healthcare and infrastructure at the forefront of investments.