Global M&A activity saw fewer but higher value transactions in the first half of 2019 (H1 2019), with total deal values increasing by 19% from the previous half year, while deal volumes fell by 12%. The trend was reflected in the Middle East, with total M&A deal values increasing fourfold from the last half of 2018, despite a slight dip in volumes, according to the latest report by global law firm Baker McKenzie*.


Global M&A started strong in H1 2019 when the total value of announced deals soared to over USD 2 trillion, buoyed by a number of domestic mega-mergers, particularly in the US. The top five deals of the period were all domestic deals, with companies shying away from big ticket cross-border transactions due to concerns over the volatility in equity markets. Cross-border M&A volumes dropped by 15% versus the same period last year, and values were also down by 45% compared to H1 2018. 


In cross-border deal making, the US remained the top target and acquiring country. The UK was the second top target by volume and value, and second top acquirer by volume. China and India were the top Asian targets based on volume and value of deals. Japan was top Asian acquirer by volume, followed by Hong Kong and China.


By value, Healthcare remained top target industry overall, featuring megadeals such as the Bristol-Myers Squibb/ Celgene USD 74 billion merger and the AbbVie/Allergan USD 63 billion merger. By volume, High Technology was again the top target industry overall, accounting for 3,846 total deals in H1 2019.


Middle East M&A activity


Deal-making overall in the Middle East was driven by high-value deals in H1 2019, such as ADNOC's USD 4 billion pipeline deal with BlackRock and KKR. Although overall deal volumes fell by 3% since H2 2018, transaction values grew fourfold, from USD 19.86 billion in H2 2018 to USD 104.4 billion in H1 2019.


Despite a 12% drop in cross-border M&A deal volumes from H2 2018, deal values nearly doubled in H1 2019, rising from USD 14.26 billion in H2 2018 to USD 27.48 billion.


Cross-regional deal volumes also dipped in H1 2019 from the previous half year, but deal values increased by nearly a third, from USD 13.75 billion to USD 18.49 billion.


Domestic deal activity rose dramatically year-on-year in both volume and value, with a 10% increase in deal volumes in H1 2019 compared the same period last year, and deal values soaring nearly tenfold from USD 8.8 billion to USD 76.9 billion. The US$69 billion megadeal involving Saudi Arabian Oil Co. and Saudi Basic Industries Corp. was the standout domestic M&A transaction in this period.


"Although there has been a slight pullback in cross-border activity in the first half of 2019, the Middle East market has been buoyed by a flurry of megadeals driven by companies pursuing a few large transformative deals, rather than many small transactions, to better compete with bigger rivals," said Karim Nassar of the Equity Capital Markets/Corporate Group of Legal Advisors in Riyadh. "Interestingly, domestic M&A in the Middle East has been booming this year, with economic uncertainty and strained trade relations across the globe likely influencing companies to build scale at home."


Inbound Cross-regional Middle East M&A


While the volume of deals into the Middle East ebbed slightly in H1 2019 from the previous half year, inbound deal values jumped from USD 2.9 billion to USD 13.9 billion in the same period.


The UAE was the top target country for inbound investment from other regions in H1 2019 by both volume and value, with 29 deals valued at USD 13.3 billion. Saudi Arabia ranked second by both volume and value with four deals valued at USD 585 million. The US remained the top inbound acquirer by both volume and value, with nine deals valued at USD 7.4 billion.


Energy & Power was again the top target industry by both volume and value, with seven deals valued at USD 9.8 billion in H1 2019, triple the value of High Technology, which ranked second by both volume and value.


"The UAE has consistently featured as the most attractive target country for cross-regional M&A deals into the Middle East, and its recent reforms to facilitate foreign investment is likely to buoy the market," commented Omar Momany, UAE Head of Corporate/M&A at Baker McKenzie Habib Al Mulla. "Consolidation in key industries such as financial services will continue to gain momentum across the Middle East over the coming months. The tech sector remains notably robust as businesses seek to acquire digital-driven companies to expand their footprint."


Outbound Cross-regional Middle East M&A


Outbound M&A activity from the Middle East into other regions dropped by volume and value, from 101 deals valued at USD 10.8 billion in H2 2018 to 88 deals valued at USD 4.6 billion in H1 2019.


The UAE was the most acquisitive country from the Middle East by both volume and value in H1 2019, with 34 deals amounting to USD 1.47 billion invested in other regions. Saudi Arabia ranked second by value, and Bahrain second by volume.


The US was the top target country for outbound deals in both volume and value, benefiting from 15 deals valued at USD 1.27 billion. Egypt was the second most popular target country by volume, while South Korea ranked second by value.


The Financials industry ranked top by volume for H1 2019, with 15 deals, closely followed by the Industrials sector. The Energy & Power industry led by value with deals amounting to USD 1.36 billion, followed by Real Estate.


Growing capital raising from domestic listings in Saudi Arabia


Although capital raised in the global IPO market for both domestic and cross-border listings fell by 37% in H1 2019 (with volume dipping 34% comparatively on last year), the Middle East stood out as the only region that recorded growth in terms of both value and volume during this period**.


Three major Saudi deals boosted the overall performance of the Middle East region compared to other global markets. These included the USD 747 million IPO of Arabian Centres Company, notably the largest IPO in the Kingdom since 2014, and the first truly international offering from Saudi.


The capital raised in H1 2019 (USD 923 million) has already overtaken that raised in the full year 2018 (USD 635), and Riyadh's inclusion on the MSCI emerging market index is widely expected to attract billions of dollars of passive funds.


"Saudia Arabia's market reforms in recent years, as part of a broader effort to encourage foreign direct investment into the Kingdom, have attracted some of the world's largest money managers to invest directly into the country's equity market," said Mohammad AlRasheed of the Equity Capital Markets/Corporate Group of Legal Advisors in Riyadh. "Although the global IPO market experienced quite a slow start to the year as significant political issues stifled activity, pipeline activity for the rest of the year is developing rapidly."


Click here to view the full H1 2019 Middle East M&A Deal activity analysis.


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