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.