How has Private Equity and M&A impacted the UAE’s economy?

The UAE's financial markets have experienced an outstanding financial year, closely mirroring the performance of regional equity markets. Despite initial economic challenges of 2020, the UAE's proactive response under capable leadership, including extensive vaccination drives, sanitation initiatives, and travel restrictions, enabled a swift and robust recovery. Dubai Electricity & Water Authority (DEWA) – represented by White & Case LLP – achieved a significant milestone in April 2022 with its successful Initial Public Offering (IPO), raising an impressive $6.1 billion. This debut marked a substantial moment for the state utility, making it one of the largest IPOs globally and the second largest in the history of the Middle East and North Africa (MENA) region. The energy and power sector emerged as the most active sector in the MENA region's financial landscape, with issuers collectively raising $9 billion. This sector's performance accounted for 39% of the total equity capital raised during the specified period.

In the realm of ECM underwriting, HSBC claimed the top position for 2022 in the MENA region, securing an 18.6% market share with the Saudi National Bank followed closely in the second position. These rankings reflect the financial prowess and market leadership of these institutions. These developments underscore a thriving financial market in the MENA region, marked by substantial capital flows and notable successes in key sectors. The DEWA IPO stands out as a testament to the region's appeal to investors and the dynamism of its capital markets. In the first quarter of 2023, companies in the region successfully conducted 10 IPOs, collectively raising an impressive $3.4 billion. Notably, the quarter's largest global IPO was the $2.5 billion listing by ADNOC Gas, a subsidiary of Abu Dhabi's state oil giant (represented by Al Tamimi & Co). These developments underscore the region's vibrant IPO market, with significant offerings like ADNOC Gas contributing to a strong start to the year. Monitoring the continued momentum in this market throughout the year will be of considerable interest.

The Middle East has also witnessed a substantial increase in Mergers and Acquisitions (M&A) activity during the first three quarters of 2021, with 323 reported completed transactions. This represents a significant upswing from the 175 transactions recorded during the same period in 2018 and 174 in 2019. The M&A activity is indicative of a resurgence in dealmaking and investor willingness to allocate capital, both in the form of equity raises for early-stage companies and investments in established players seeking financial improvement. A notable driver of this M&A surge has been the active participation of government-owned sovereign wealth funds, contributing to a 39% increase in M&A activity in 2022. Approximately 84% of these transactions involved businesses, sovereign wealth funds, and private equity investors, who engaged in a relatively small number of deals. Sovereign wealth funds in the region are employing M&A as a strategic tool to expand into new markets, foster partnerships, and support local economies. The Middle East's buoyant economy, coupled with the strongest regional GDP growth in over a decade (projected at 6.5%, with Saudi Arabia leading at 7.6%), provides a conducive environment for such investment activities. Government directives, such as the recent $1.3 billion investment by the Public Investment Fund (PIF) in Egyptian enterprises, exemplify the unwavering commitment of state-owned institutions to stimulate M&A growth. These substantial investments not only signify dedication to economic development but also have the potential to significantly impact Egypt's economic landscape. By injecting considerable capital into various sectors, they stimulate job creation, drive innovation, and enhance the global competitiveness of Egyptian businesses. Additionally, these investments attract foreign direct investment (FDI), instill confidence in the local market, facilitate technology transfer, promote economic diversification, and align with long-term economic goals. As such, they have far-reaching implications that extend beyond financial transactions, necessitating diligent monitoring to ensure alignment with the nation's broader economic objectives.

In a broader context, the surge in M&A activity underscores the region's aspiration to diversify its economy beyond hydrocarbons. This strategy aims to enable Middle Eastern companies to expand globally, explore new sectors, and enhance their competitive positioning. The continued evolution of these trends will be closely monitored as they shape the economic landscape of the Middle East in the foreseeable future. The outlook for 2024 appears promising, with expectations of another year marked by robust growth in the UAE. The country's economic resilience and proactive measures taken to navigate challenges in the previous year provide a solid foundation for sustained economic strength and stability. The UAE's financial markets have demonstrated resilience and impressive performance, making them an appealing destination for investors due to the country's adaptability and effective responses to changing circumstances, positioned well for continued growth and stability in the year ahead.

Following this increase, multiple law firms are inevitably expanding their teams due to the excessive growth in the M&A and Private Equity sector. If you are interested in having a confidential conversation discussing a relocation to the Middle East – please get in touch: [email protected]

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