Mergers and acquisitions (M&A) activity in the Middle East has shrunk significantly in the first nine months of 2009, with just $13.3bn worth of deals being completed. The total value of deals for the whole of 2008 was $64.3bn.

The number of deals has also dropped dramatically, with 234 deals completed so far in 2009, down from 463 in 2008, according to research from Abu Dhabi-based asset manager Gulf Capital.

M&A bankers in the Middle East say the financial crisis has damaged the ability of potential buyers to raise finance, while would-be sellers are reluctant to revalue their companies in the light of the global financial crisis.

The average transaction size has fallen from $305m in 2007 when the market peaked, to $114m so far in 2009.

“The M&A window is shut for the time being,” says Karim el-Solh, chief executive officer of Gulf Capital, speaking on the sidelines of MEED’s M&A Conference 2009. “Very few banks are willing to finance buyouts at the moment.”

Aside from the difficulties faced by buyers in raising finance, the Middle East M&A market faces other significant obstacles. One problem is that potential buyers find it difficult to obtain accurate financial information about companies. Another problem, particular to the UAE, is the confusion over drawing up legally enforceable contracts.

“When buying companies, what you see is not always necessarily what you get,” says Abdalla Elbiary, managing director of Egyptian private equity firm Citadel Capital.

Citadel says the Middle East’s private equity funds have a total of $11bn to invest, but Elbiary says they will continue to be cautious. “In the past, it was fairly easy to get investors to commit to a new transaction,” he says. “Now, they will only put their money down for the best deals.”

In 2010, says Elbiary, the funds will focus their investments on the telecoms, financial services, healthcare and education sectors.