M&A activity in Middle East to increase

While global M&A activity is down distressed M&A is increasing fast and comprises is a much more significant portion of global M&A activity.

However distressed M&A is yet to gain traction in the GCC magnifying the slowdown in overall M&A activity.

Reasons include:

· The GCC has lagged the West into the downturn, so distress is a more recent phenomenon- and it takes time to work through to deals.

· While many companies aren't paying their debts, there are almost no formal bankruptcies (at least as yet) to force a sale.

· Creditor rights and options are uncertain, (whether via bankruptcy applications or other enforcement action), and accordingly there are no fast-track options to force assets to be realised to pay debts.

· Accordingly there is a lot less pressure on distressed companies to sell and take a hit on value.

· Leverage is tight and generally not available on a non-recourse basis, making it very difficult for private equity buyers in particular to make a deal work for them.

· Alternative buyer strategies such as buying existing distressed debt or providing new debt as a step to ownership are too risky because of uncertain creditor rights.

· Regulatory hurdles are a barrier to quick distressed deals.

However many businesses have no way forward without a cash injection from a new source and can't stand still forever. Ultimately they must accept the new valuation environment and either sell or attract new external capital.

When that happens there will be buyers and investors eager to take advantage of the best buying opportunities for a long time. They will need to overcome particular obstacles and risks associated with the current environment, but the attractiveness of the opportunity makes this worthwhile.

Andrew Lewis quotes, "There are certainly risks buying in this uncertain environment and most particularly buying from a distressed seller, so buyers should tread with some caution and undertake thorough diligence, but the opportunity is too good to miss. We will look back on the next few years as vintage buying and investment years when some of the best deals in living memory were done by selective buyers who had the courage and got it right."