Maintaining market share was a key driver behind dealmaking
While some companies are pressing pause on M&A activity amid a period of ongoing uncertainty, others are continuing to move forward. Interestingly, 35% of MENA respondents see M&A as a necessity for growth, to maintain market share and enhance long-term competitive advantage. For a quarter of MENA executives surveyed, acquiring capabilities in certain industry domains has become their primary strategic focus. Portfolio diversification and entry into new markets is a strategic priority for 22% of MENA executives.
Portfolio optimization remains a corporate imperative
Portfolio optimization and preserving capital has become a corporate imperative. Three-quarters of MENA respondents say they are actively reviewing their portfolios every six months or more to capitalize on disruptive forces impacting their businesses. Seventy-one percent have identified underperforming assets and non-core assets to divest.
Executives are also assessing a number of capital allocation strategies to mitigate risks and boost returns. A majority indicate they are zeroing in on improving working capital management and investing in existing operations. Within the Kingdom of Saudi Arabia (KSA) and Egypt, executives are paying more attention to digital transformation.
Strategic buyers to drive M&A in 2019
As we look ahead to 2019, one of the key themes we see continuing is sector consolidation and emergence of cross-border dealmaking. Strategic acquisitions by regional sovereign wealth funds is expected to be robust given the strong deal pipelines and the government(s) mandate to pursue diversification as a strategy. Also, strategic buyers will continue to look for value-chain expansion opportunities. Influenced by regional market conditions, fundraising and dealmaking by private equity is expected to be relatively subdued compared to the previous years. Private equity will remain net sellers, providing strategic buyers a unique opportunity to cherry-pick high-quality assets in a predominantly buyer’s market.