Over the last three years, Saudi Arabia and the United Arab Emirates (UAE) have dominated Egypt’s mergers and acquisitions (M&A) scene, with activity set to intensify within the healthcare and education sectors in the midst of the current economic slump.

“We expect M&A activity to accelerate this year,” says Hany Genena, head of research at Cairo Financial Holding. “The assets here are considerably cheaper than those in the GCC countries and they already waited for the right moment to come after the latest devaluation [of the currency] this month.”

The lingering impact of the global pandemic and the Russia-Ukraine war combined with recent events — including Israel’s war on Gaza and the Houthis’ attacks on ships in the Red Sea — have all continued to weigh on Egypt’s economy, forcing the central bank to devalue the currency four times in the last year. In the last review on 6 March this year, the central bank hiked interest rates 600bps to 27.25%.

As such, the value of the Egyptian pound has decreased by around two thirds, sliding from 15 pounds to 47.25 per US dollar on Mar 28.

Attractive opportunities

In 2022, M&A cross-border deals in Egypt grew by 8% in value and were dominated by Gulf countries, according to the data published by the law firm Baker McKenzie.

In the first half of the financial year 2023, M&A activity in Egypt fell as a result of Cairo’s ongoing resistance to the demand by the International Monetary Fund (IMF) for a flexible exchange rate. Activity then rebounded in the second half of the year, with 87 deals completed, 25 of which were by Saudi Arabia.

Meanwhile, Egyptian companies have welcomed Gulf partnerships as borrowing rates have risen from 9.7% in March 2022 to an all-time peak of 28.25% this March, making debt financing much more expensive.

Consolidation has also risen as stronger Egyptian companies mop up smaller rivals, and the privatisation scheme by the government to strengthen the private sector and get much-needed funds has opened up numerous sectors to internal and external M&A.

“Despite the nuanced investment landscape in Egypt, the size of the market, resilience and adaptability of local businesses makes it a natural growth market for the GCC, especially for businesses looking to expand their footprint in developing markets,” Hani Nassef, M&A partner at Baker McKenzie in Cairo, says.

Health and education

Beyond the multibillion-dollar agreement that Egypt and the UAE reached last month to develop Ras El Hekma on the Mediterranean Sea and other reports of Saudi Arabia’s interest in a Red Sea beachfront area, analysts tell The Africa Report that Egypt’s health and education sectors are on the radar of investors from Gulf countries.

“Egypt is the most populated [Arab] country, it’s a big market. With rising inflation, Egyptians are [only spending money on] food, housing and water. What’s left from their income is geared [towards] education and health,” says Genena. “Now gulf investors have started to invade these sectors,” he says.

Over the past few months, Egyptian local media has reported on multiple deals involving Saudi Arabian corporations in Egypt’s healthcare sector. The Saudi business Batterjee Holding Group (BHG) announced in November that it will be investing over $50m in the Egyptian pharmaceutical industry over the next two years.

As part of the announcement, BHG also revealed that within six months, it hopes to acquire an Egyptian Exchange (EGX)-listed pharmaceutical company, but did not disclose its name.

Last year, the Saudi Andalusia Group for Medical Services, which owns several hospitals in Egypt, paid $20m for two plots in Cairo to build two hospitals. Whereas the Saudi Arabia’s Public Investment Fund (PIF) was reportedly in advanced negotiations to buy three private Egyptian firms in healthcare, education, and real estate development last year.

Other options

Meanwhile, Saudi media reported on some Egyptian companies and entrepreneurs relocating and establishing branches in Riyadh in the past few months.

Sami Al-Ahmad, an entrepreneur and CEO of an Ed-tech company in Cairo, stated that in the previous two years, inflation — which reached a record high of 38% last September — has had a tremendous impact on startups since the capital of many businesses has reduced in value and they had to boost pay.

He tells The Africa Report that several CEOs he knows have opened branches in Riyadh, Dubai to benefit from tax incentives and economic stability. “We have instead chosen to strengthen our online presence in all MENA countries, to increase our revenue from overseas.”