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UAE stays region's top foreign investment hub in Q1

India was the top acquirer country for inbound investment into the Middle East in Q1 2020.

The UAE remained the most attractive foreign investment destination in the first quarter as the value of merger and acquisition activity in the Middle East during the period rose by $5 billion in comparison to the previous quarter.

According to a report by global law firm Baker McKenzie, in volumes the first quarter recorded six more M&A deals.

"It is evident that the current global situation has caused a slowdown in the growth of M&A activity in the Middle East, but Q1 2020 seems to have benefited from last year's momentum" said Omar Momany, partner and head of the Corporate and Commercial Practice Group at Baker McKenzie Habib Al Mulla.

India was the top acquirer country for inbound investment into the Middle East in Q1 2020 in terms of volume with seven deals valued at
$130 million. The US was the top acquirer country in terms value with $1.06 billion and ranked second in terms of volume with four deals. The UAE remained the most attractive foreign investment destination both by volume and value with 16 deals amounting to $ 1.1 billion.

The UAE was also the most acquisitive country by volume in Q1 2020, with 11outbound deals amounting to $352 million. Saudi Arabia was the top acquirer country by value with $2.6 billion and ranked second by volume with nine deals.

The cumulative value of foreign direct investment in the UAE climbed to $140.3 billion at the end of 2018, as the second-biggest Arab economy continues to implement reforms and attract foreign capital despite global economic headwinds.

An eight per cent year-on-year rise in the aggregate value of FDI to the UAE in 2018 bucked a global trend, according to the UAE Minister of Economy Sultan bin Saeed Al Mansouri.

The US was the top target country for outbound deals in terms of volume benefiting from 12 deals valued at $820 million followed by Egypt (six deals) and the UK (3three deals). Egypt however, was the most popular target country by value as its deals accounted for $2.4 billion or 66 per cent of all outbound activity from the region.

Total Middle East M&A deal activity jumped to $9.3 billion out of 95 deals in Q1 2020, up from nearly $4.0billion out of 89 deals in Q4 2019. The top five largest deals were valued at 7.4 billion, accounting for almost 80 per cent of total deal values. Industries that secured the most value for its deals were industrials with $ 1 billion followed by high technology with $190 million.

"Given the current economic environment and the level of uncertainty that exists due to Covid-19, we can potentially expect two possible scenarios moving forward. The first is a further slowdown in the M&A volumes and values in the next two and possible three quarters reflecting on the global uncertainty, investors' anxiety and shift of priorities. The second scenario is that growth continues but at a much slower pace and value, similar to that of Q1 of the current year, driven by companies being interested to join forces in an attempt to mitigate losses and consolidate and driven by availability of quality assets and targets available at lower valuation. This is certainly an unprecedented time and one can only speculate as to what the short-term future will hold in relation to M&As in the region," Momany said.