MENA firms aim more investments, M&A to drive back to growth track: EY survey

By Amirtha P S, Desk Reporter
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Business Growth
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The Middle East and North Africa (MENA) region companies are expecting to rebound from the pandemic crisis next year by making further investments through digital transformations and mergers and acquisitions, a new survey suggests.

According to an EY survey, nearly 71 percent of executives who participated stated that they are likely to see revenues return to pre-pandemic levels by 2022 or earlier, while 69 percent foresee only normalized profitability within the same timeframe.

Last year, the coronavirus outbreak created an uneasy situation for businesses around the world, with many companies shutting down or laying off staff. In the Middle East region, the aviation, tourism and hospitality sectors confronted the worst effect due to weak consumer demand, with the impact worsened by low oil prices.

Nearly 90 percent of the respondents of the EY survey polled that they indeed experienced a fall in revenue due to the pandemic, although most of them claim they feel satisfied with their performance during the crisis.

Despite the challenges, the businesses across the region are showing some resilience. In order to stay relevant and achieve growth, strategies are focused around digital transformation, as well as mergers and acquisitions (M&A).

Within the next 12 months, 37 percent of MENA firms are planning to actively acquire businesses to accelerate their growth in the post-pandemic world. About 84 percent of executives also plan to invest in bolt-on acquisitions.

Matthew Benson
Matthew Benson
Managing Partner
Strategy & Transactions

“The reduced travel, social distancing, remote working and low oil prices of the past year have had a disproportionate impact on corporate earnings. Yet MENA corporates remain nimble and resilient, with executives finding that the current circumstances present a unique time for M&A, with several sectors ripe for consolidation.”

Last year, the M&A activities were largely led by government-related entities and transformation of state-backed companies like Aramco and ADNOC, as well as the investment strategies of Abu Dhabi Development Holding Company (ADQ) and Saudi Arabia’s Public Investment Fund (PIF).

The deals were following the general trend toward privatization efforts related to key infrastructure assets, such as electricity, aviation and housing. However, Mr. Benson states that there is also a strong pipeline of interesting mid-market opportunities, which is mainly driven by sellers’ needs to raise capital.

When asked about investments, 81 percent of business executives said they expect the Middle East to be a preferred destination, which will generate growth opportunities for their company in the next three years.

Around 87 percent of MENA businesses are also undertaking business and technology transformations to stay relevant and step up growth.

“MENA respondents cited a specific focus on accelerated digitization of customer journeys and business processes as their most important strategic action for growth. Furthermore, they are looking for digital solutions that can help them increase customer interactions and technology and automation that can reduce labor costs and increase scalability to drive increased profit margins,” EY survey said.

To support their transformations, 76 percent of MENA firms plan to invest more money in technology, while 64 percent intend to focus more on innovation. Nearly, 55 percent are also looking to acquire assets domestically.

Related: Employees in GCC positive about post-COVID future; PwC survey