The deals may not be of the multibillion-dollar variety that excite international investment banks but merger and acquisition activity shows signs of life after a period of lacklustre growth.

In a report this week, Ernst & Young said M&A deal volumes rose 36 per cent in the first half of 2011 year on year while values were up 8 per cent. Saudi Arabia and the United Arab Emirates were the most active markets.

A survey last month by Zawya, a data provider, found that M&A deals in the Middle East and north Africa increased 33 per cent in the first half compared with the same period last year. The total value of such deals in the first half rose 30 per cent to $21.2bn from $16.3bn in the first six months of last year.

A large proportion of that was Abu Dhabi-based International Petroleum Investment Company’s €3.7bn acquisition in February of Cepsa, a Spanish oil company.

Qatar’s sovereign funds have also been active this year; announcing UK property acquisitions as well as investment in the Greek banking sector.

This all means that for the M&A specialists who have remained in the region during the years of the downturn, green shoots are starting to appear, albeit not on the multibillion-dollar scale. In particular, midsize, intra-regional transactions are gathering momentum.

“It’s enough to feed me,” says Tamer Makary, head of corporate finance at Arqaam Capital, a Dubai-based investment bank. “Whether it’s enough to feed multibillion-dollar operations is another story. It may take some time before those large headline deals occur.”

Scott Campbell, an M&A specialist and partner at Linklaters in Dubai, says: “The beginnings of the green shoots of recovery are starting to be seen. There’s a need within these economies to consolidate – there’s so much fragmentation.” Mr Campbell singles out the financial sector as an area where deals are likely to be done.

Although the region has seen little domestic consolidation so far, two new drivers have emerged.

First, in countries hit by lingering political unrest, banks may be forced to combine to survive. In Bahrain, where political instability has rattled lenders, Bahrain Islamic Bank and Al Salam Bank announced last month a plan to merge into a single lender with BD1.7bn ($4.5bn) in assets.

Second, in Qatar, which has avoided popular unrest, a central bank regulation forcing the separation of Islamic banking services from conventional banks is leading to the sale of sharia-compliant divisions to other domestic banks. Last month, the International Bank of Qatar announced the sale of its Al Yusr Islamic retail operations to Barwa Bank, another Qatari lender.

Outward M&A deals have traditionally dwarfed those made in the Middle East, which often struggle in the execution stage.

Last year, UAE mobile phone operator Etisalat’s $12bn offer to buy a stake in Zain, a Kuwaiti telecoms operator, failed to materialise, disappointing bankers. This year, a proposed merger between Qatar’s Al Khaliji Commercial Bank and the International Bank of Qatar fell through.

Middle East M&A activity slumped during the global financial crisis as sellers were reluctant to dispose of assets at low prices. Bankers say that sellers are now accepting the new financial circumstances.

“Valuations are becoming more realistic in the region,” says Omar Mehanna, head of advisory for the Middle East and north Africa region at HSBC in Dubai.

“The investors who understand the region are seeing opportunities, as the price gap between buyers and sellers has narrowed.”

The revolts across the region, which toppled leaders in Tunisia and Egypt and ousted the regime of Colonel Muammer Gaddafi in Libya, further added to the negative outlook for the region’s M&A industry. Investors are starting to seek opportunities in the post-revolution states, bankers say.

Egypt, where the political landscape has been redrawn in recent months, is beginning to attract interest from Gulf, western and Asian international investors.

“Informed regional and international investors are looking at a number of opportunities in the region. Valuations are clearly one catalyst, but the changing geopolitical landscape also is a key driver,” says Nabil Lahham, partner at Perella Weinberg Partners, the financial services firm.

One of those investors is Abraaj Capital, a Dubai-based private equity house. Last month the company acquired the north African private equity platform of Amundi, an asset manager owned by Société Générale and Crédit Agricole. Abraaj will take over assets in Morocco and Tunisia.

“You start to differentiate in a post-Arab spring world and you look at the different markets that were affected,” says Mustafa Abdel-Wadood, chief executive at Abraaj.

“I think the main theme when considering whether to enter these markets is the potential for long-term growth that will ultimately lead to a more positive outcome.”

The Financial Times