Merger and acquisition activity in the Middle East is expected to recover in 2010, driven by sovereign wealth funds in Abu Dhabi and Qatar, the potential for consolidation in several industries and as companies are forced to restructure, a senior banker said on Sunday.

'There is quite a bit of fragmentation, i.e. the region is really ripe for consolidation,' said Peter Fort, executive director in Morgan Stanley's Dubai office.

M&A levels in the Middle East, like elsewhere in the world, sunk to historic lows in the wake of the economic crisis.

Regionally, M&A activity also slowed because of the absence of clear takeover codes, the lack of financing opportunities and the valuation gap between buyers and sellers.

In 2010, 'there will be continuing focus on the sovereign wealth funds, particularly in Qatar and Abu Dhabi, driving the M&A activity,' Fort said at an economic workshop. He added these funds may adopt a more regionally-focused strategy.

'We're hoping the long-awaited consolidation wave will materialise,' said Fort, referring to several recent Qatar deals.

Qatar has encouraged several companies from livestock to real estate to merge to help them grow and weather the fallout from the financial crisis, which has upped the pressure on consolidation in the Gulf Arab region.

Morgan Stanley's Fort also expects a 'tremendous amount of further restructuring that is coming down the pipe.'

'The peak of restructuring activity comes about 18 to 24 months after the troth of the economic crisis,' Fort said.

'We'll see over the next 12 months more restructuring activity ... That is going to drive M&A on the sell side,' he said, adding Morgan Stanley was working on a number of restructuring cases. – Reuters