M&A activity surged in the region in 1Q 2025

MENA dealmaking surged in 1Q, with M&As jumping 66% y-o-y in value to USD 46 bn across 225 transactions (up 31% y-o-y) driven by “regulatory reforms, policy shift and a favorable macroeconomic outlook,” EY MENA Leader Brad Watson said in the firm’s latest M&A insights report. The UAE dominated the region’s M&A league table as the top target country in 1Q with 63 transactions totaling USD 20.3 bn, followed by Kuwait (USD 2.3 bn).

Cross-border activity hit a five-year high in 1Q, driving the bulk of growth. M&As with companies based in different countries accounted for 81% of the region’s total transaction value and 52% of volume across 117 plays in the first three months of the year.

The value of domestic transactions hit USD 8.7 bn, up 5x y-o-y. Transactions in the technology sector accounted for 37% of total domestic M&As value, and 27% of their volume. G42’s USD 2.2 bn acquisition of a 40% stake in Khazna Data Centers was the region’s largest domestic M&A last quarter.

The quarter saw more M&A capital outflows than inflows: Outbound M&A activity hit USD 19.7 bn, representing 43% of total transaction value in the region. Saudi Arabia and the UAE alone made up 77% of outbound activity by volume and 94% by value. The UK was the region’s top target country by dealcount in 1Q, while Canada and Peru led in outbound value, thanks to Adnoc and OMV’s joint acquisition of Canada’s Nova Chemicals for USD 6.3 bn.

Inbound M&A value clocked in at USD 17.6 bn last quarter, representing a 7x y-o-y increase.The UAE captured the bulk of inbound funds into the region, accounting for 53% of all inbound transactions and nearly all of the total value (99%) fueled by the USD 60 bn merger of Adnoc and Austrian energy giant OMV’s polyolefin businesses. Austria topped the investor chart, making up 94% of the UAE’s total inbound value.

Keep an eye on these sectors: The MENA M&A pipeline looks strong for the rest of 2025, with more action expected in consumer, tech, and energy. And with AI set to shake up how value is created, it’s expected that more investment will flow into the tech space, said Anil Menon, EY’s head of M&A and Equity Capital Markets.

ANOTHER AREA THAT COULD SEE MORE CONSOLIDATION- The banking sector in the GCC, according to Fitch Ratings, which expects sustained lower oil prices and weaker global demand to put pressure on GCC bank operating environments, “leading to weaker profitability and acting as a catalyst for M&A as banks seek to diversify their revenues and increase scale,” the ratings agency said in a report. Fitch argues that smaller banks may be on the M&A radar, citing their “weaker franchises, and often higher funding costs and thinner capital buffers.”

Most GCC banking sectors are “overbanked,” with a big number of banks operating relative to population size — more than 150 banks operate across the region, half of which are domestic commercial banks. A lot of the banks have common shareholders.

While the majority of GCC bank M&As have been domestic, Fitch expects “a gradual shift towards regional transactions, citing Kuwait Finance House’s takeover of Ahli United Bank as an example. A few GCC banks have also expressed their interest in expanding beyond the region, but Fitch warns that this may entail additional risks, “especially for acquisitions in more macroeconomically volatile markets, such as Turkey and Egypt.”

The UAE could see more consolidation of Islamic banks: “The UAE’s ambitious domestic Islamic finance strategy may lead to further M&A involving Islamic banks,” Fitch said, also citing Dubai Islamic Bank’s 2020 acquisition of Noor. Other local Islamic banks have been acquired by Emirates NBD and Abu Dhabi Commercial Bank, with the aim of supporting financing and deposit growth.

MARKETS THIS MORNING-

Asian markets are in the red this morning amid uncertainty over the fate of US tariffs, as well as inflationary pressures in Japan and fears of a slowing US economy. Japan’s Nikkei led declines, while mainland China’s CSI 300 was flat at the open. Over on Wall Street, futures are little changed following a good day for US indexes.

THE CLOSING BELL-

The ADX remained flat yesterday on turnover of AED 1.7 bn. The index is up 3.5% YTD.

In the green: Sudatel Telecommunications Group (+12.5%), Emirates Ins. Co (+9.6%), and Abu Dhabi National Co. for Building Materials (+3.4%).

In the red: Ins. House (-6.2%), Alef Education Holding (-2.5%) and National Corporation for Tourism & Hotels (-2.2%).

Over on the DFM, the index fell 0.6% on turnover of AED 844.3 mn. Meanwhile, Nasdaq Dubai was down 0.5%.