The volume of mergers and acquisitions (M&A) activity in the region is expected to increase in 2012 as businesses look for new ways to grow amid limited opportunities for organic growth, according to experts in the region.

US-based Deloitte says it expects M&A activity to gradually improve during the year after a largely disappointing 2011. Bankers involved in the sector also say deal flow could start to rise over the coming months.

The return of optimism follows indications that the first quarter of 2012 has already shown signs of improvement. According to figures released by data provider Zephyr, the value of M&A activity in the Middle East and North Africa (Mena) region rose from $2.2bn in the last quarter of 2011 to $5.7bn in the first quarter of 2012.

The latest figures show the most activity since the second quarter of 2011 and are among the highest quarterly deal values since the beginning of 2010. Although the value of deals rose, the number of deals dropped from 87 last quarter to 58 in the first quarter of this year. The UAE was the biggest market, both in terms of deal volume and value.

Globally, the figures show that the Middle East was the one region of the world were M&A activity improved at the beginning of 2012.

As confidence returns focus will primarily be on deals in the education, healthcare, consumer goods, and food and beverage industries, according to Richard Clarke, managing director transaction services at Deloitte. He also points to financial services as a sector ripe for consolidation.

Bankers say that companies undergoing restructuring as a result of the financial crisis could supply new deals to the market. “Many firms that have restructured, or are going through a restructuring, will need to sell-off some of their assets and that should ensure that there is some deal flow over the rest of the year,” says one M&A banker.

A recovery in M&A activity would be a relief for banks, which have been disappointed by the drying up of M&A activity since the onset of the financial crisis. In 2008, activity was peaking at about $54bn. By 2011, it had dropped to $13bn, a six-year low. Political unrest in several countries around the region weighed on activity. The UK’s Royal Bank of Scotland announced in January that it plans to sell off its regional M&A business.

A rebound in private equity activity in the Middle East had also been hoped to drive more deals. After several years of little activity, private equity houses in the region are said to be reviewing their portfolios. However, one of the largest investment funds in the region, Bahrain-based Arcapita, filed for Chapter 11 bankruptcy protection in the US in mid-March.