The facade of a branch of Bank Sohar in Oman.

Making moves: Sohar International Bank has an eye on HSBC and Bank Nizwa

Surging sovereign wealth fund coffers sustained Middle East deal-making in 2022, while banking consolidation slowed to a trickle, writes John Everington. 

Deal-making in the Middle East remains in a healthy state, even as valuations receded somewhat in line with international trends. While the number of transactions announced across the region fell by 8% in 2022 to 625, the figure remains comfortably higher than for any of the past 15 years, barring the surge in 2021.

Technology deals made up the lion’s share of transactions across the region in terms of both volume and valuations, including significant transactions within the fintech space. Yet the past year was once again a muted one for deals within the financial services space, amid rising interest rates and higher oil revenues for many regional states, easing the pressures on lenders to seek partnerships and mergers.

The return of global economic uncertainty in 2022 — fuelled by Russia’s invasion of Ukraine and global interest rate rises — made a fall in deal valuations for the year practically inevitable following the surge of transactions in 2021, and the Middle East was no exception.

Additional firepower

Yet, the windfall from higher oil prices for many of the region’s largest economies meant that the impact was more limited than elsewhere, providing additional financial firepower for the region’s sovereign wealth funds.

“The Middle East’s sovereign wealth funds are growing … and with a new government mandate, they have become a treasure chest for much of the M&A activity [of the past year],” said Bain & Company in its 2023 M&A Report.

Middle East deal valuations saw a year-on-year drop of 36% to $86.7bn, according to data from Dealogic. Such a figure, however, was the third-highest total of the past 15 years and remains broadly in line with the average over the past five years.

Such a total may well be revised downwards in coming weeks, however, with the region’s largest inbound investment deal — the merger of Israeli energy firm Newmed with the UK’s Capricorn Energy — increasingly in doubt.

The merger, announced in September 2022, was widely predicted to be abandoned as at the time of writing, after activist shareholder Palliser Capital forced management changes at Capricorn in early February. The management changes came after Palliser-led Capricorn shareholders questioned the deal’s value for money.

The technology sector was by far the most active for deals in the Middle East during 2022, accounting for 30% of deal values and 40% of transactions for the year, according to Dealogic data.

Israel remains the clear leader for the region, its tech sector accounting for about a sixth of its gross domestic product and more than half of its exports, with the three largest tech deals for 2022 all involving Israeli targets. Intel’s $5.4bn acquisition of Tower Semiconductor, announced in February 2022 and expected to close later this year, was second only to the Capricorn–Newmed deal in terms of value size for regional deals for the year.

Israel also played host to the region’s largest fintech transaction the past year, in the form of the purchase of Herzliya-based payment service provider Finaro, formerly known as Credorax, by US-based payments company Shift4 for $575m. The acquisition, announced in March, was worth more than the combined value of the region’s next nine-largest fintech transactions.

In the wider Middle East, deals involving buy now, pay later (BNPL) providers were especially noteworthy in Saudi Arabia and the UAE, and symptomatic of a rapid rise in such services across the region. The BNPL market for the Middle East is set to rise from $7.2bn in 2021 to $89bn by 2030, according to forecasts from Precedence Research.

Saudi Arabian BNPL provider Tamara in August 2022 announced $100m worth of Series B funding, led by Sanabil Investments, a wholly owned subsidiary of Saudi sovereign wealth fund the Public Investment Fund (PIF).

UAE-based BNPL firm Tabby secured $54m worth of Series B extension funding in March 2022, led by Sequoia Capital India and STV. Tabby, which is also backed by UAE sovereign wealth fund Mubadala, raised a further $58m worth of Series C funding in January 2023.

Slow year for financial sector

In contrast with the fintech space, deals announced in the region’s financial sector were few and far between in 2022. Financial service deal valuations amounted to just $5.9bn in 2022 — their lowest level since 2017 and sixth overall in terms of sector values. The two deals announced in 2022 worth in excess of $1bn took the form of the acquisition of shares in Gulf-based investment firms by state-linked investment vehicles.

In January 2022, the UAE’s Alpha Dhabi Holding — a subsidiary of state-backed conglomerate International Holding Company (IHC) — announced the acquisition of a 25% stake in local investment firm Al Qudra Holding for $1.9bn. The deal is in line with a sustained transfer of local assets to both Alpha Dhabi and IHC — both controlled by the country’s national security adviser Sheikh Tahnoon bin Zayed al-Nahyan — which have become in a relatively short space of time the two largest listed entities on the Abu Dhabi stock exchange.

In Saudi Arabia, in May 2022, the PIF announced the acquisition of a 16.9% stake in local investment firm Kingdom Holding Company — which owns stakes in international firms including Citi, Four Seasons, Uber and Twitter — for a consideration of $1.5bn.

In a quiet year for conventional banking deals in the region, the biggest deal announced was the planned merger of HSBC Oman with Sohar International Bank (SIB), the country’s third-largest lender. The merger deal, announced in June 2022 and set to complete in the second half of 2023, would see HSBC exit Oman as part of a wider pull back from non-core markets and would create the country’s second-largest lender by assets. SIB is also in discussions to acquire fellow Omani lender Bank Nizwa.

In February 2022, Capital Bank of Jordan (CBJ), the country’s fifth-largest lender, announced plans to acquire local rival Société Générale Bank Jordan for a consideration of $205m. The deal, completed in October, came a year after CBJ acquired the Jordanian and Iraqi assets of troubled Lebanese lender Banque Audi. CBJ received a further boost in June with the acquisition of a 24% stake in the lender by Saudi Arabia’s PIF.

Beyond conventional banking, the past year also saw Bahrain-based cryptocurrency exchange Rain raise $110m in Series B funding, from prominent venture capitalists including Paradigm, Kleiner Perkins, Coinbase Ventures and Global Founders Capital. The investment came just ahead of last year’s ‘crypto winter’, which has seen the region’s cryptocurrency aspirations thrown into doubt, following the collapse of prominent names such as Terra, Celsius and FTX.


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