Egypt’s M&A landscape is showing signs of recovery

Egypt’s mergers & acquisitions landscape is showing signs of recovery, according to analysis by PwC. Maye Ayoub, a Cairo-based partner in the firm’s Deals practice, walks through the latest developments in the M&A scene, and pinpoints the sectors and domains which are catching most of the action.

After a challenging couple of years, the Egyptian M&A landscape seems to be showing resilience, recording a 21% year-on-year increase in mergers & acquisition deals in H1 2024. Key sectors such as financial services and consumer goods are driving investment, supported by strategic reforms in currency and tax policies.

The Middle East and North Africa’s most populous country had a turbulent couple of years, with its economic troubles worsening in 2022 due to the outbreak of war in Ukraine; meanwhile, regional geo-political conflicts have further intensified economic pressures. The Egyptian pound nearly halved in value over 2022-2023. This, combined with post-Covid-19 inflation, pushed up the cost of imports, resulting in high inflation.

The situation now looks to have improved. This has largely been driven by a $35 billion investment from the UAE, which enabled key reforms – particularly around currency – and helped reduce inflation. Additional support from the International Monetary Fund (IMF), World Bank, and European Union (EU) also helped avert a potential crisis. Collectively, these developments have paved the way for more opportunities for deals.

Notable recent deals

As reported in PwC’s latest M&A report, deals in the Middle East in the first half of 2024 stood at 214 – a 4% decline from H1 2023, compared to a 25% drop globally. This underscores the Middle East’s ongoing resilience, standing out against other regions despite shared macroeconomic challenges and complex geopolitical factors.

In Egypt meanwhile, there was an uptick in the number of deals, with 46 M&A transactions involving Egyptian targets completed in the first half of 2024, up from 38 deals in the same period in 2023.

The largest announced deal in H1 2024 in Egypt, completed at the beginning of the year, was ICON’s acquisition of a 51% stake in seven state-owned hotels located in Cairo, Alexandria, and Aswan, for a total of $800 million. This transaction was among the five largest M&A deals in the Middle East in H1 2024.

Other notable deals in H1 2024 included B-Investments Holding’s acquisition of a majority stake in Orascom Financial Holding, valued at $50 million, and the acquisition of Yodawy by Ezdehar Mid-Cap Fund II for $10 million.

This marks a sharp contrast to 2023, which was a challenging year for Egypt. A combination of factors, including uncertainty around the devaluation of the Egyptian pound, interest rate hikes, and general economic concerns, contributed to a notable downturn in M&A deals in Egypt. The number of deals during this time plummeted by 53% year-on-year to 139, with the total value declining by 62% to US$3.48 billion.

Cross-border deals, often an indicator of international investor interest, experienced an even more drastic decline in Egypt, dropping by 80% in total value compared to the previous fiscal year.

Strategic reforms and investments

However, amidst the prevailing headwinds, pockets of resilience and promise appear to be on the horizon. The latter half of 2023 witnessed a 32% increase in the number of M&A deals over the first, accompanied by a remarkable 383% rise in total deal value. December emerged as a standout month, surpassing all others in terms of both the number and value of completed deals.

Investor interest remained palpable, particularly in sectors such as financial services (particularly non-banking financial services), essential consumer goods, tourism, infrastructure, and healthcare. Inbound investments, exemplified by transactions like the Ras El Hekma deal and Emirati Global Investments Company’s acquisition of a stake in Eastern Company, underscored Egypt’s enduring appeal as an investment destination.

The UAE Ras El-Hekma land deal is expected to attract up to $150 billion in future investments, creating significant employment and revenue through developments such as a new airport and tourist resorts.

Furthermore, European companies have signed deals worth over €40 billion with Egyptian firms across various industries, EU President Ursula von der Leyen has recently announced, while global players, such as British Petroleum (BP) reaffirmed their commitment to Egypt, with plans to invest significantly in exploration activities.

Sector analysis

Several sectors have emerged as hotbeds for M&A activity in Egypt during H1 2024:

Financial Services: The financial services sector was the most attractive area for inbound investments in Egypt in H1 2024, with 18 deals, and will continue to be influenced by factors including the increasing importance of digitalisation, AI, green finance, and sustainability. One of the notable transactions in the financial space was B-Investments Holding’s acquisition of a majority stake in Orascom Financial Holding, valued at $50 million.

Investments in the financial services space have continued to progress beyond H1. In September, a consortium of investors including SPE Capital and the European Bank for Reconstruction and Development (ERBD) acquired a minority stake in Tamweely, Egypt’s leading non-banking financial services provider, which specialises in serving micro- and small-sized enterprises (MSMEs).

Consumer: The consumer markets industry, at a global level, faced challenges due to uneven inflation rates across the region and high interest rates. However, in Egypt, the food sector remains a key industry, reflecting its importance in M&A deal flow.

The Food & Beverage sector saw the most significant growth in deal activity in H1-24, with nine major acquisitions involving key market players. Notable examples include UAE-based Agthia Group’s acquisition of an additional 10% stake in Egyptian snack company, Auf Group, for almost $22 million – increasing its entire stake in the company to 70%.

Healthcare: Across the region, despite regulatory challenges and rising interest rates, the healthcare and life sciences sector has seen a 30% increase in deal activity compared to H1 2023. Egypt led in deal volume, accounting for 50% of the total, driven by government-led modernisation efforts and a more active private sector. The healthcare sector, particularly pharmaceuticals and equipment supplies, witnessed eight deals.

Energy: The energy sector also appears a promising source of inbound investment, with BP planning to allocate $1.5 billion towards development and exploration opportunities in Egypt. Efforts in the region have increased the contributions towards increasing renewable energy and net zero emissions, while also considering the countries’ increasing energy demand and rapidly growing economy.

With significant investments currently underway in renewable energy, we see the issuance of new green bonds in Egypt.

Telecommunications, media, and technology: A major announcement in this space was the launch of Huawei Cloud’s Cairo Region and new data centre, in partnership with Orange Egypt. Another significant deal, although just outside the H1 2024 window, was Telecom Egypt’s signing of a $600-million agreement with 4iG, Hungary’s largest telecoms and IT group, to build a state-of-the-art fibre optic network across Egypt.

The momentum seems set to continue beyond H1 2024, with a recent announcement in August 2024 that Egyptian B2B e-commerce platform MaxAB and Kenya-based Wasoko completed Africa’s largest-ever tech merger – a significant moment for Egypt’s M&A landscape.

The outlook for Egypt’s deals landscape

Going forward, to safeguard Egypt’s economic stability, sound macroeconomic policies, such as targeting inflation and maintaining a flexible exchange rate regime, are vital. Structural reforms are key to enhancing growth prospects, while careful management of capital inflows can help control inflation and reduce the risk of external pressures. It is also key for Egypt to focus on reforming its tax system, ease customs red tape, and foster an investor-friendly environment.

The new cabinet’s efforts to address economic challenges, including the new measures to increase transparency in the tax system and ongoing development of investor-friendly policies, boost the country’s competitiveness, and make it easier for foreign businesses to operate here. These measures are laying the foundation for sustained growth and long-term investment.

While significant risks remain in the region due to ongoing conflicts and uncertainties, investors continue to see vast potential in Egypt – which has historically always been a major hub for inbound investment and the third-largest destination for deals in the region, following Saudi Arabia and the UAE. Its young and growing population, combined with its competitive labour costs and strategic location, gives the country a strong global advantage.

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