The Middle East and North Africa (MENA) region has posted a 30 percent fall in investment ‘exit’ deals by investors in the first half of 2023 – a stark pointer to the fact that the ‘funding winter’ has not only crippled startup founders’ dreams of raising growth capital but has even dashed hopes of earning multi-bag returns on investments by venture capital (VC) and private equity (PE) firms.
In terms of numbers, the MENA region recorded just 27 exits in the first half of the year, revealed the half-yearly M&A report by MAGNiTT.
Africa saw 15 exits split between seven for the first quarter and eight for the second quarter of the year, showed the report by the leading venture capital data platform of MEAPT.
The reluctance on the part of investors to accept lower valuations for their investments in startups and other ventures, coupled with the venture promoters’ eagerness to keep their existing investors with them in these hard times, are said to be major factors for the sharp decline in the number of ‘exit’ deals in the merger and acquisition (M&A) sector in MENA during the January-June period of this year.
“FinTech remained the only sector among the top three to see an yearly increase in the number of exits, with seven M&A transactions in H1 ’23 as compared to two in the corresponding period last year,” MAGNiTT said.
Fewer M&A ‘exits’ in the wider MEAPT region as well
As for the wider Middle East, Africa, Pakistan and Turkey (MEAPT) region, the total number of ‘exits’ were at 56 in H1, 2023, 16 percent less than what was registered in the first half period of last year, the MAGNiTT report said.
The report also showed that the overall M&A activity in MENA was subdued in H1, 2023, despite lower valuations.
The UAE accounted for almost 70 percent of the total number of M&A transactions in H1, making the country the most active market for corporate mergers and acquisitions activities in MEAPT, the report said.
“At the end of last year, we had anticipated that depreciated valuations would create an opportunity for late-stage startups and corporates to acquire startups at depreciated values. However, the data from our H1’23 analysis indicates that these acquisitions are not taking place yet,” Philip Bahoshy, CEO of MAGNiTT, told Arabian Business.
“This can be driven by several factors, including acquirers waiting before taking further action to preserve cash levels during uncertain times,” he said.
Bahoshy pointed out that the prevailing higher interest rates also push up the cost of capital, probably making investors think that it is safer to invest in more traditional assets.
He said startup founders are also unable to digest lower valuations compared to previous years of investment rounds, leading to the sharp fall in M&A numbers in the region.
The MAGNiTT chief executive, however, said M&A deals are likely to see a pickup in the first quarter of 2024.
“We do believe M&A activities will pick up as the market returns and strategic acquisitions are made, but this will be more likely to accelerate in Q1’2024,” he said.
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