The pandemic creates unique opportunities for M&A in MENA

As capital confidence rebounds, corporates in Middle East and North Africa remain nimble and resilient after an unforgettable year.

The COVID-19 pandemic crisis has been an unprecedented event, with varying effects on individual countries and sectors in the Middle East and North Africa. Reduced travel, social distancing, remote working and low oil prices have had a disproportionate impact on corporate earnings. Yet, according to the latest results from the EY Global Capital Confidence Barometer, 71% of MENA respondents expect to see revenues return to pre-pandemic levels by 2022 or earlier, while 69% anticipate a return to normalized profitability within the same time frame.

Strategic and portfolio reviews focus on business resilience and accelerating digital transformation

Accelerated by the pandemic, every MENA respondent surveyed indicates that their company conducted a thorough strategic and portfolio review in 2020. Immediate strategic priorities include cost optimization, capital allocation and understanding the long-term impacts of the pandemic on their business. However, so far, we’ve seen relatively little in the form of restructuring or liquidations. Businesses appear to be managing their costs, while consumers pivoting to staycations have reversed early declines in the travel and tourism industries.

MENA companies are also focusing strategic efforts on digitization. Accelerated by the pandemic, 87% of MENA companies are undertaking substantial business and technology transformations to stay relevant and accelerate growth. The application of technology has made MENA corporates more productive, promoting a gestalt that COVID-19 has triggered the beginning of a widespread digital makeover across sectors.

MENA respondents cite a specific focus on accelerated digitization of customer journeys and business processes as their most important strategic action for growth. MENA executives also 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.

MENA governments are making the region more attractive for FDI

Governments in the region are enacting regulations that are more friendly to FDIs, both on a corporate level (foreign ownership of assets, easing of capital market norms and simplifying the ability to invest in local capital markets) and a citizen level (elongation of visa periods, citizenship, among other incentives). At the same time, governments, including the United Arab Emirates, are trying to promote liquidity in the capital markets via mandatory listings for certain types of organizations and secondary markets for medium-cap companies.

Growth plans rely on bolt-on acquisitions

In a period of muted organic growth, 84% of the respondents say they plan to invest in bolt-on acquisitions and 94% of the respondents expect greater competition for assets; much of the competition is expected to be from private capital in MENA.

The EY Global Capital Confidence Barometer confirms that even in the worst crisis known to humankind, MENA corporates remained largely resilient and nimble. They are capitalizing on the new normal and successfully pivoting their businesses to an exceptional intersection of the physical and digital worlds.