Lumina reveals its 2024 Cross-Border M&A Insights report

Lumina reveals its 2024 Cross-Border M&A Insights report

Despite global dealmaking challenges in 2023, UK-to-MENA cross-border trade and transactions displayed remarkable resilience. The latest report from Lumina Capital Advisers uncovers a strategic evolution in the MENA region’s transaction sphere, characterised by a trend towards substantial growth capital and buyout deals. This shift has led to the rise of regional powerhouses and reconfiguring international business strategies. The year also marked a pivotal moment for the Middle East as it transitioned into a net innovation exporter, spearheading extensive renewable energy initiatives and digital transformation.

As 2024 unfolds and the global dealmaking environment rebounds, Lumina’s analysis positions the Middle East as an enduring epicentre for dynamic transactional activities.

Key report findings:

1- UK PLCs capitalise on record growth in MENA, boosted by energy transition initiatives
UK PLCs had a great year in 2022 in the MENA region with significant revenue growth, particularly in sectors aligned with the region’s energy transition initiatives. The MENA region’s growing stature for FTSE-listed companies is reflected by the revenue contribution of those companies with Middle East revenues climbing to 20.9% of global sales (up from 20.1% the year before). Among the FTSE 250, 21 of the top 27 companies with MENA revenues reported an upward trend, with sectors like Transport, Technology, and Industrials experiencing rapid growth. These achievements coincide with the MENA region’s ambitious energy transition, fostering substantial inward investment and business opportunities in a rapidly evolving energy landscape.

Andrew Nichol, Partner at Lumina Capital Advisers, remarked, “The impressive growth in sectors beyond Oil & Gas, particularly in Industrials, Healthcare and Transport and Technology, is a testament to the dynamic and innovative environment fostered by the region’s commitment to sustainable energy projects.” Nichol added, “As the region continues to invest in renewable energy and green technologies, we foresee a continued upward trajectory for UK businesses, making the MENA an increasingly vital hub for global economic and environmental leadership.”

2- Record-breaking FDI surge in the UAE and KSA sets the stage for MENA investment in 2024
Foreign Direct Investment (FDI) in the UAE and KSA reached unprecedented heights in 2022, marking the first time that KSA’s FDI surpassed that of the UAE. KSA experienced an astounding 71% increase in FDI in 2022, underlining its emergence as a regional investment powerhouse.

In 2024, key MENA projects are poised to drive FDI and UK-to-Middle East investments. Notable among these projects are mega/giga mixed development ventures like NEOM, a groundbreaking high-tech mega-city in KSA’s Vision 2030 plan with an estimated cost of USD 500 billion, and Palm Jebel Ali and Tower at Creek Harbour in the UAE, set to redefine luxury living. Infrastructure projects, including the King Salman International Airport and the Dubai Metro Blue Line, promise significant economic contributions and enhanced connectivity. Additionally, renewable energy continues to be emphasized through projects like the Mohammed bin Rashid Al Maktoum Solar Park in Dubai, which will become the world’s largest solar park on a single site, and Shuaibah 2 Solar Facility in Saudi Arabia, which will power hundreds of thousands of homes. These projects will collectively shape a promising landscape for investment in the MENA region in the coming year.

3- MENA transaction landscape: A shift from early-stage VC to growth/corporate strategic M&A and JV deals in 2023
The MENA transaction landscape saw significant changes in 2023. Early-stage VC deals declined while M&A and JV transactions in the USD30 million to USD200 million range remained consistent. Regional M&A and PE deals decreased by 15%, lower than the global M&A drop of 27%. The year also saw significant transactions led by sovereign wealth funds.

“As 2023 progressed, we noticed that private sector-led deals gained momentum, accompanied by a resurgence in Private Equity activity, focusing on exits and capital raising. These developments reflect the dynamic and evolving nature of the MENA transaction market,” said George Traub, Managing Partner at Lumina.

4- 2024: The rise of private equity and private credit as dominant funding sources
In 2024, the financial landscape is witnessing a significant shift, with Private Equity (PE) and Private Credit (PC) emerging as the primary asset classes for companies seeking essential growth capital compared to 2023. This trend is driven by the increasing quality and volume of PE and PC deals, resulting from regional funds being raised from a variety of sources, including domestic, international, and sovereign wealth funds. As a result, PE and PC are set to overtake venture capital as the leading source of growth capital funding. Several factors are contributing to this shift:

Firstly, the decreasing interest rates are leading to a lower cost of deal funding, making these options more attractive. Secondly, there is a growing recognition of sophisticated investors’ value, including growth, access, support, and bolt-ons, leading to more reasonable deal valuations. Thirdly, there is an increase in the flow of transactions, especially in the USD 30 million to USD 200 million range, which aligns well with the sweet spot for most regional firms. Lastly, in the realm of PC, it is increasingly acknowledged as a relatively ‘cheaper’ alternative to equity. This is coupled with the fact that the majority of corporations are facing almost a total lockout in seeking acquisition finance from banks, further cementing the role of PC as a crucial financing source in this evolving market.

Traub commenting on the rise of PE and PC, “From Lumina’s perspective, we can see that all the new, well-funded participants in the PE and PC markets predicate an increase in sophisticated, institutionalised investing in 2024.”

Lumina Middle East 2024 predictions on the themes that will drive deals and trade activities

Resilient dealmaking with increased size and sophistication in 2024 – The dealmaking sector is poised for resilience, with a notable uptrend in deal size and sophistication. This is driven by increased international involvement in cross-border transactions and a shift from traditional venture capital dynamics. As a result, the region has now progressed from discussing to leading renewable energy initiatives in 2023 and is now attracting larger deals from global firms. Key growth sectors include energy transition, healthcare, travel and tourism, gaming, engineering, project management, and digital transformation, indicating a more diverse and complex dealmaking landscape.

Funding will return (at last) – Private Equity and Credit, encompassing both direct investments and secondaries, are expected to be the fastest-growing asset classes in the region. This growth is expected to be attributed to an increase in funding from various sources, including domestic, international, and sovereign wealth funds. Therefore, a rise in the volume of PE and PC deals is expected. Lumina predicts a shift towards more institutional investments, moving away from the ad-hoc or individual direct investment approach that characterised the VC boom. This transition will leverage sophisticated funds’ deep experience, vast networks, and expertise.

FDI will grow across non-oil sectors, driven by SEZs and ongoing regulatory reform – As a cornerstone in regional governments’ plans, FDI will continue to flow across energy transition initiatives. Special economic zones (SEZs) and regulatory reform in KSA will balance risk-return profiles. Green hydrogen projects in KSA, UAE and Oman will be implemented as a result of focused national strategies. Complex hard and soft infrastructure project development will require regional and global firms to collaborate and innovate to deliver on ambitious plans.

Regional champions will rise – The regional champions trend will continue to gain momentum across key sectors such as Construction, Healthcare and Infrastructure services, in conjunction with transactions centred around international interest in JVs and partnering to deliver skills and technologies for complex mega projects in AI, Digital Transformation and advanced manufacturing.

“Looking ahead, 2024 stands as a landmark year for economic recovery and dynamic dealmaking,” concluded Andrew Nichol. “Having emerged as a global highlight in recent years, our region is set to capture global boardrooms with the quality, sophistication, and scale of our deals. With the myriad of opportunities at our doorstep, we are confidently positioned for a solid performance this year, and we are looking forward to what awaits us.”

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