6 minute read 2 Jun 2020
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MENA executives look to strengthen their resilience through M&A

By Matthew Benson

EY MENA Strategy and Transactions Leader

Focus areas: helping clients with their capital agenda, transaction diligence, data analytics, private equity. Passionate about triathlons.

6 minute read 2 Jun 2020

With transformation already underway pre-crisis, MENA executives expect M&A to help them accelerate change.

The pandemic event that placed hundreds of millions of people around the world in lockdown and significantly impacted the global economy arrived later in Middle East and North Africa (MENA) countries. As a result, we are seeing a slower reaction in the results of the latest EY Global Capital Confidence Barometer (pdf).

In the survey responses of MENA executives, gathered between 4 February and 26 March 2020, we find uncertainty and caution, but also some cautious optimism, even as they face the double whammy of low oil prices and a pandemic. For example, although three-quarters (77%) of respondents say that they expect the COVID-19 pandemic to have a severe impact on the global economy, only one-quarter (25%) think it will have a significant effect on the local economy.

Yet, MENA executives acknowledge that the impact will vary by region and sector.

  • In the United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA), respondents are more pessimistic about the impact, with 88% and 85%, respectively, expecting the global economy to be severely impacted, while one-third or more (35% and 32%, respectively) are bracing for a significant negative impact locally.
  • Meanwhile, in Egypt, only one-fifth anticipate a severe impact locally, while one-third expect it to have no impact at all.
  • Overall, half of MENA respondents agree that the pandemic will have a minor impact on profitability and margins.

By sector, with airlines in the region heavily impacted both regionally and globally, and global supply chains and production disrupted, MENA respondents agree that the automotive and transportation sector will be most negatively affected by the current crisis. With few commercial flights operating, we also expect a negative knock-on effect on tourism.

One reason MENA countries initially may have felt financially insulated from the pandemic is that many companies in the region are well-capitalized and therefore believe they can operate longer before feeling the financial pinch. That said, at the time of the survey, few could have predicted the depth, breadth or duration of the impact.

With transformation plans underway pre-crisis, MENA companies are well-positioned for recovery

The good news for the MENA region is that it had already been moving in the direction of building a low-touch economy pre-crisis — 80% of MENA executives say their company is undergoing a significant business and technology transformation to meet profitability goals, expand into adjacent markets and attract new customers. Their journey from the physical brick-and-mortar world to the digital economy has its challenges, but it also represents significant opportunities, particularly now.

Transformation journey


of MENA respondents say their company was undertaking a significant business and technology transformation pre-crisis.

In response to the pandemic, 67% and 73% of MENA executives, respectively, are re-evaluating or taking steps to change their digital transformation and speed of automation initiatives.

For an import-driven region, supply chain reinvention is essential

Even more than those changing their digital transformation and automation initiatives, 92% are considering or making changes to their global supply chain. MENA economies rely on imports not only for discretionary goods, but also for day-to-day essentials, making them vulnerable to supply chain uncertainties.

Given the significant disruption to global supply chains during this crisis, Gulf Cooperation Council (GCC) governments are considering a range of options to create an environment where local industries can flourish. These may include anything from building local or regional supply chains, to creating digitally networked supply chains that are data-driven and can react to events and make changes in real time. By sharing data in the cloud, or directly integrating with suppliers, MENA companies can improve collaboration and supply chain visibility. GCC governments are also using policy interventions to support the growth of the local industry.

Supply chain reinvention


of MENA respondents say they are re-evaluating or taking steps to change their global supply chain.

Activity may have slowed in the short term, but M&A appetite remains healthy

Although percentages are lower than the first half of 2019, 62% of MENA executives remain optimistic that the global M&A market will improve in the next 12 months. Locally, MENA executives are equally optimistic, particularly among those who responded later during the survey period. Total deal volume in first quarter of 2020 in MENA was 109 deals, which was slightly lower than 115 deals in the first quarter of 2019. However, it is noteworthy that unlike prior years, much of the acquisition capital was deployed in MENA.

In the immediate term, MENA executives in the region expect a slowdown in conventional M&A activity as companies focus on shoring up liquidity, cost efficiencies and, when needed, raising equity. However, the pandemic and lower oil prices are expected to accelerate consolidation across sectors and sale of non-core businesses held by merchant families. M&A markets, as well as MENA companies, are also watching the oil price developments closely to better understand GCC governments’ ability to spend through the pandemic to spur the economy.

Across the region, 54% of MENA executives say they plan to actively pursue M&A in the next 12 months, only slightly lower than six months ago.

  • In the UAE, intentions are actually higher, with 56% looking to make deals in the next year, vs. 45% in October 2019.
  • Conversely, in KSA, intentions are down from 63% six months ago to 57% in this survey.
  • In Egypt, although it would appear executives have lowered their expectations, deal intentions remain higher than the long-term average of 39%, with 49% expecting to be active in the M&A market.

M&A outlook


of MENA respondents say they plan to actively pursue M&A in the next 12 months.

Overall, we expect MENA executives will apply different strategies to respond to, and in some cases capitalize on, the changing economic environment. Some MENA companies will use M&A to strengthen their resilience and position for recovery through bolt-on acquisitions (45%) and transformative deals (30%) that could fundamentally reshape their business. Others that are less-well-capitalized may find themselves forced to raise capital though divestments, either through full-enterprise sales processes or sale of minority stakes.

Now, MENA executives need to find a balance between cautious optimism and preparation for tougher times

In the immediate term, as MENA companies continue to navigate the pandemic’s impact, they need to find a careful balance between cautious optimism that the region will be less impacted than the rest of world, and preparation for tough times ahead. Every sector will follow a different path, with some emerging unscathed while others fight for their survival. Already we are beginning to see a level of stress that is catalyzing some businesses to shore up liquidity and divest non-core assets.

Next, the focus needs to be on reshaping and reinvention

Pre-pandemic, the increasing pace of change in the market had 80% of MENA companies undergoing more frequent strategic reviews. An always-on strategic and portfolio review process will allow MENA companies to identify areas of growth at the earliest opportunity and surface areas of underperformance sooner. We expect divestitures of stressed and distressed assets to continue in the medium term, while some companies look for deals that will help to strengthen existing capabilities.

With efforts already underway, we also expect that MENA executives will look to accelerate business and digital transformation and supply chain reinvention to position themselves for economic resurgence.

Beyond, M&A will transform industries

Looking beyond, we expect to see an uptick in transformative M&A activity leading to consolidation in certain industries.

Preparing for the opportunities ahead will be key to success in a new normal

Although we are seeing a range of reactions among executives — from complete denial to panic to proactive preparation to seize the opportunities ahead, MENA governments are taking mature and prudent steps to safeguard their people. One of their more high-profile decisions was to delay Expo 2020 until 2021.

At the same time, governments continue to bet on their long-term strategies, such as KSA’s decision to move forward on its US$500b investment in megacity Neom, which borders on the Red Sea. Efforts to build health care infrastructure in the region are also ongoing.

No one can predict when or how the global economy will move from triage and recovery to resurgence. We expect that MENA companies that focus on accelerating digital transformation and e-commerce, supply chain reinvention and industry consolidation will, however, emerge stronger than those that are waiting to see how it will all play out.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Matthew Benson

EY MENA Strategy and Transactions Leader

Focus areas: helping clients with their capital agenda, transaction diligence, data analytics, private equity. Passionate about triathlons.