The risks of Mergers & Acquisitions (M&A) in the Middle East & Africa – And how to navigate them

Mergers and acquisitions (M&A) remain a key strategy for companies seeking growth and market entry globally. Across the Middle East & Africa (MEA), opportunities abound—from energy and infrastructure to finance and technology. But while the rewards can be significant, M&A in the MEA region comes with unique and complex risks that require careful management. 

In this blog, I examine recent regional trends, identify key M&A risks in MEA, and share actionable strategies to mitigate them. 

M&A snapshot: 2024 trends across MEA 

• 823 M&A deals valued at approximately USD 63.96 billion, showing a stabilised market post-COVID-19.¹
  
• The Technology, Media, and Telecommunications (TMT) sector led activity with 227 deals, far outpacing Industrials & Chemicals.¹
  
• The UAE was the busiest M&A hub in the Arab world, with 130 deals worth USD 11.68 billion, still above pre-pandemic levels despite a decline from 2022 highs.¹

• Deal values in the first nine months of 2024 rose 36% year-on-year, far surpassing the global average increase of 10%. However, the number of deals remained steady indicating a notable increase in average deal size.²
  
• Egypt saw a 27.3% increase in deal volume but a 14.2% drop in value, driven by a surge in both domestic and cross-border transactions.³ 

Key risks

1. Political and economic instability
   

   While many Middle Eastern and African countries are enjoying relative stability, the region remains geopolitically complex. Sudden changes in government, civil unrest or shifting alliances can lead to unexpected changes in laws, trade agreements or foreign investment policies.
   
   Additionally, fluctuations in global oil prices can impact valuations, deal financing and the long-term profitability of an acquisition. For companies reliant on oil-export-driven economies, even minor disruptions in supply chains or trading corridors can have outsized effects.

2. Regulatory and legal challenges
   Regulatory frameworks across MEA vary significantly between jurisdictions. Some countries, like the UAE, have adopted highly pro-business environments, whereas others may impose strict foreign ownership laws.
   
   For instance, in Saudi Arabia, foreign investors often need to partner with a local stakeholder, especially in certain strategic sectors. Legal systems may be based on civil law, common law, or Sharia (Islamic law), which affects contract enforcement, dispute resolution and corporate governance. The absence of legal uniformity between countries makes cross-border deals especially complex.

3. Cultural dynamics and business etiquette
   

   Business customs, negotiation styles, and corporate governance can differ dramatically between, say, Qatar and Egypt, or Nigeria and Lebanon.

   Family-owned businesses, which dominate many markets, often operate with different priorities than publicly listed or multinational firms. For example, decision-making in a family business may be centralised within a patriarchal structure, and succession planning may not always be clear. Understanding these nuances is essential to building trust and fostering productive negotiations.

4. Financial risks

   Currency fluctuations pose another major risk. While some Middle Eastern and African currencies are pegged to the US dollar or euro, others are subject to volatility, particularly in countries with less economic stability.

   Exchange rate swings can impact the valuation of assets, the cost of debt servicing and expected returns. Inflation, subsidy changes and liquidity constraints may also influence deal structures and post-acquisition performance.

5. Integration and reputation risks
   The real challenge often begins after the ink has dried. Integrating two businesses—especially across borders—requires the alignment of company cultures, values and operations. Issues such as workforce restructuring, technology integration and management style differences can delay synergies or damage employee morale.
   
   Moreover the reputation of a company holds significant weight. A poorly handled acquisition can damage relationships with key stakeholders, clients or regulators, particularly if perceived as dismissive of local practices.

6. Due diligence challenges
   Conducting due diligence in the MEA can be more difficult than in other regions. Disclosure laws vary widely, and there can be a lack of transparency in company ownership, financial statements, and legal obligations.
   
   Accessing reliable data for risk assessments, ownership structures, or creditworthiness can be challenging without the support of specialised local advisors. Labour laws may also differ dramatically by country, impacting the treatment of employees in restructuring efforts.

How governments can attract foreign M&A investment
To improve M&A outcomes and attract more foreign direct investment (FDI), MEA jurisdictions could consider several strategies (if not in place already):

• Simplify approval processes and reduce red tape
• Provide legal clarity on foreign ownership regulations
• Improve anti-corruption policies and compliance standards

• Establish accessible corporate databases
• Standardise financial reporting frameworks
• Improve credit rating systems and public data sharing

• Offer tax incentives and relaxed capital controls
• Develop Special Economic Zones (SEZs) with business-friendly policies
• Boost the effectiveness of investment promotion agencies

• Strengthen local financing ecosystems
• Expand IPO pipelines and modernise stock exchanges
• Encourage private equity and venture capital investments

• Promote ethical, sustainable business practices
• Align corporate strategies with global Environmental, Social, and Governance (ESG) standards
• Encourage transparency in boardroom practices and stakeholder engagement

• Facilitate regional trade agreements and investment treaties
• Improve legal cooperation for cross-jurisdictional M&A
• Strengthen regional financial institutions to support complex deals

Mitigating risk
While the risks are real, they can be effectively managed through a strategic approach.

✔ Get advice from experts
Partnering with advisors who understand the legal, cultural and financial nuances of the region is essential. Local experts can offer invaluable insights into regulatory hurdles, negotiation dynamics and deal structuring.

✔ Conduct thorough due diligence 
Use enhanced tools to investigate company structures, legal liabilities, financial records and workforce obligations. Due diligence should include a deep analysis of ownership transparency, compliance history and reputational risk.

✔ Understand political risk and consider insurance 
Political risk insurance (PRI) can protect against events like expropriation, currency inconvertibility or civil unrest. Understanding macroeconomic indicators and regional dynamics is key to forecasting potential disruptions.

✔ Develop an integration plan
Cultural integration matters just as much as operational alignment. Identify key stakeholders early and invest time in relationship-building. Design a robust integration plan with clear timelines, communication channels and contingency strategies.

Final thoughts
Despite the risks, the Middle East & Africa remain regions brimming with potential for strategic mergers and acquisitions. With the right partners, deep local knowledge, and a proactive risk mitigation strategy, companies can unlock significant value and long-term growth.

Looking to explore M&A opportunities in the Middle East & Africa?

Contact Diligencia today for a tailored analysis of M&A trends by sector or jurisdiction in the MEA region.