• Overall global deal values soared in 2018 by 19% year-on-year, despite volumes falling by 8%
  • Middle East M&A deal values increased by 50% over the past 12 months
  • Domestic deal values tripled in the Middle East
  • The UAE remained the most acquisitive and targeted country in the region

Global M&A deal values soared in 2018, rising by 19% to US$4 trillion compared to 2017 values, although deal volumes dropped by 8% versus the previous year. Middle East market activity also remained robust, with a 50% increase in deal value for full year 2018, according to the latest report by global law firm Baker McKenzie*.

Total deal value was buoyed by a number of mega-deals during 2018. Many of the mega-deals were announced in the first half of 2018 (H1 2018), with only three deals breaking through the US$20 billion mark in the second half (H2 2018).

The United States (US) outperformed other countries in both inbound and outbound cross-border M&A in 2018, with a combined US$720.9 billion in cross-border deal values. Despite (or potentially because of) the uncertainties surrounding its exit from the EU, the United Kingdom (UK) was the second top target and acquirer country by deal volume and value, with cross-border deals amounting to US$331.2 billion in 2018, behind only the US. Japanese acquisitions overseas more than doubled in value in 2018 to reach US$185 billion, pulling ahead of China (with only US$116.6 billion).

Healthcare was the top industry for cross-border dealmaking by value in 2018 globally, largely due to Takeda Pharmaceutical’s US$62 billion takeover of Shire Plc, the highest value deal of the year. Technology was the top industry by deal volume in 2018, with a total of 2,199 cross-border deals.

Middle East M&A activity

Total Middle East deal volume for 2018 was almost identical to 2017 (463 deals for 2018 versus 464 deals for 2017). However, deal value in the region increased by nearly 50% year-on-year - US$44 billion in 2018 compared to U$29.5 billion in 2017. The spike in value was spurred by a number of transactions with a value over US$1 billion, including Saudi British Bank’s US$5 billion merger with Alawwal Bank. In total, there were 10 deals valued at more than US$1 billion announced in 2018 where the target and/or acquirer was based in the Middle East.

Cross-border M&A activity slowed in the second half of 2018 in terms of deal volume, with only 130 deals in H2 2018 compared to 177 deals in H1 2018. However, cross-border deal value increased by 26% from 2017 to 2018.

Cross-regional deal volume and value fell in H2 2018, but total deal value increased by over a third year-on-year, rising from US$20.8 billion in 2017 to US$28.8 billion in 2018.

Domestic deal volumes were also identical for 2017 and 2018, but deal value nearly tripled year-on-year, soaring from US$5.5 billion in 2017 to US$13.9 billion in 2018.

"Despite challenging global market conditions in 2018, companies continue to see the value in M&A for growth and expansion, but also appear to be divesting assets to focus on core or more profitable businesses, said Omar Momany, UAE Head of Corporate/M&A at Baker McKenzie Habib Al Mulla, based in the UAE. "There was a significant amount of consolidation in the Middle East in 2018, particularly in the financial services sector. We anticipate geopolitical headwinds and regulatory risk to weigh on dealmakers’ minds, although legislative reforms for the foreign direct investment regimes in the region may well balance the trend and attract more direct investments in 2019."

Inbound Cross-regional Middle East M&A

Despite a slowdown in H2 2018, the value of cross-regional deals targeting the Middle East increased from US$9.4 billion in 2017 to US$11.3 billion in 2018. Deal volume, however, fell by 13% year-on-year with a total of 92 inbound deals in 2018.

The UAE remained the most attractive target country to overseas investors in 2018, with a total of 59 inbound deals valued at US$7.7 billion, followed by Saudi Arabia (with 12 inbound deals amounting to US$1.05 billion). The UK was the top acquirer country by volume with 13 inbound deals, while China was the top acquirer country by value investing a total of US$1.7 billion in the Middle East.

The majority of inbound cross-regional M&A was focused on the Energy and Power sector, with a total of 20 deals amounting to US$8.7 billion. This was likely the result of diversification from oil-based economies and increased investment in renewable energy across the region over the past number of years.

"Governments across the region, notably the UAE and Saudi Arabia, are introducing more progressive policies in an attempt to make the region more attractive for foreign investors,” said Will Seivewright, Corporate/M&A partner at Baker McKenzie Habib Al Mulla, based in the UAE. “As a result, cross-border M&A activity should continue in the Middle East in 2019, with opportunities for foreign investment across a range of industries such as financial services, transportation and logistics."

Outbound Cross-regional Middle East M&A

The value of outbound cross-regional deals from the Middle East increased by 53%, from US$11.4 billion in 2017 to US$17.5 billion in 2018. Deal volume was also up by 13% in 2018, with a total of 181 outbound deals, compared to 160 outbound deals in 2017.

The UAE was the most active acquirer country both by volume and value in 2018, with a total of 89 outbound deals valued at US$9.4 billion. The US was the top target country by volume with 25 deals, while Turkey was the top target country by value, benefitting from US$3.2 billion of investment from the Middle East.

The majority of outbound cross-regional M&A was focused on the Industrials sector, with a total of 36 deals amounting to US$5.5 billion. This was followed by the Financial Services sector with a total of 20 outbound deals valued at US$3.2 billion.

Karim Nassar, Corporate/Capital Markets partner at Baker McKenzie's associated firm in Saudi Arabia (Legal Advisors Abdulaziz Alajlan & Partners in association with Baker & McKenzie Limited) added, "Notwithstanding macroeconomic uncertainties, cross-border M&A activity in the region fared well in 2018, buoyed by a strong and steady flow of acquisitions from the Middle East into other regions, particularly in the industrial and financial services sectors. Businesses in the Middle East will continue to look overseas to solidify their capital base and implement innovation to drive business growth, all of which will contribute to deal activity in the region in the years to come.”