Mergers and acquisitions activity in the MENA region down by 66% in Q1 2009 compared to Q1 2008, Ernst and Young

This was revealed in Ernst & Young's quarterly Middle East update on Mergers and Acquisitions, which compiles publicly available deals and values across the region.

The update revealed that M&A activity had fallen both in terms of number of deals and disclosed values. A total of 140 deals were announced in the first quarter of 2008 against 47 in the first quarter of 2009.

Within these, outbound deals fell from 48 deals in Q1 2008 to 11 deals in Q1 of 2009, a drop of 77%, and the number of inbound deals also fell from 20 in Q1 of last year to 5 in Q1 2009, reflecting a drop of 75%. Domestic (MENA) deals fell 57%, from 72 to 31 in Q1 2008 and Q1 2009 respectively.

Azhar Zafar, Head of Mergers & Acquisitions at Ernst & Young Middle East said:

"The drop in the number and value of deals in the Middle East is reflective of the global economic recession and follows the trend in world-wide M&A activity. Deals within the MENA region have fallen by 57%. However, it is worth noting that inbound and outbound deals into and from MENA have fallen in excess of 70%, showing that investors are looking inwards and are more cautious when it comes to cross-borders deals. The Q1 statistics for 2009 also confirm our experience of the market place. Investors took more time or did not make decisions as they were unsure of how much bad news was yet to come. However, astute investors continued to acquire companies with good business models and sound cash flows at reduced valuations."

The average deal size in the MENA region fell from $215m (Q1 2008) to $116m (Q1 2009) whilst average size of outbound deals has also fallen from $913m to $880m for the same periods.

In Q1 2009, 27 deals disclosed value out of the total 47 announced. Value of disclosed deals fell by almost 73% - from $42.2bn in Q1 2008 to US $11.5bn in the first quarter of this year. Domestic deals saw a fall of 79% in terms of value - from $8.8bn to $1.9bn in Q1 2008 and Q1 2009 respectively. Value of outbound deals also dropped 78%, from $30bn to $9.7bn during the same periods.

Energy, Oil and Gas was the top sector for regional M&As in the first quarter of this year, with six deals while Financial Services and Banking had five deals and Telecom had four.

Going forward, Azhar believes that M&A activity in the next several quarters will be dependent on the availability of liquidity in the marketplace and the willingness of sellers to accept realistic valuations.

"However if liquidity continues to remain tight, we could expect to see mergers especially as declining revenues and margins would force competitors to consolidate in order to reduce costs and continue operating profitably," he concludes.