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Exclusive: Will Corona distressed companies spur a regional M&A drive?

Now in its first decade, the MARC M&A Attractiveness Index Score (MAAIS) provides an update based on 2019 data and analysis, ranking a total of 148 countries worldwide

Within the top 50, the greatest improvement over the past year included United Arab Emirates up 6 places All firms' funds they had, plans they had, and the strategy they had, will all need to change We expect distressed firms in the region to be restructured or bought by multinationals

MARC is the Mergers and Acquisitions Research Centre at Cass Business School, City, University of London – the first research centre at a major business school to pursue focussed leading-edge research into the global mergers and acquisitions industry.

The Index provides for each country a percentage figure which indicates its attractiveness for domestic and in-bound M&A purposes, i.e., its ability to attract and sustain business activity.

The primary component of the Index comprises six categories of country development factors.

• Regulatory and Political indicators (e.g., rule of law, political stability and control of corruption) 

• Economic and Financial indicators (e.g., GDP size and growth, inflation, stock market capitalisation and access to financing) 

• Technological indicators (e.g., innovation and level of high-tech exports) 

• Socio-economic indicators (demographics) 

• Infrastructure and Assets indicators (e.g., road and rail networks and number of registered companies). 

• Environment, Social and Governance

The largest movements would be expected to be further down the tables. Within the top 50, the greatest improvement over the past year is Brazil (12 places) followed by Mauritius (7), United Arab Emirates (6) and Estonia (6). ‘Socio-Economic’ is the greatest strength for Brazil, while ‘Regulatory and Political’ is the main strength for both Mauritius and United Arab Emirates. 

Read: “The world post-coronavirus is not going to be the same for a long time to come”

AMEinfo asked Dr. Naaguesh Appadu, Research Fellow at Cass Business School, Faculty of Finance, University of London to answer 2 questions for us:

1- How will the global M&A landscape change in Tier 1 countries taking Corona and a recession combined as factors.

The index will not change significantly as all the variables will not change as they are lagged. However, due to the Coronavirus, the M&A activities will change. For example, all the predictions that were mentioned in the news are flawed and with recession looming in the coming year/s, we expect firms to be cautious. The funds they had, the plans they had, the strategy they had will all need to change accordingly. We expect a lot of firms to be in distress and therefore, we expect a lot of restructuring to take place which will be great news for advisors. We also expect the big multinationals to tap into the distressed firms.

We expect China to move up as they are out of the chaos and have already resumed their operations. As for other countries, we expect Singapore most probably to overtake the US as North America will be badly affected. Most top European countries will be affected as they also follow the US trend.

Some points for the UK:

Interest rates are now at the lowest ever in the Bank’s 325-year history.

We expect an increase in unemployment as many businesses will not be able to sustain the lockdown period despite the incentives by the government.

Given that the Brexit negotiation is still unclear, and the prime minister is in ICU, it will take time for the British economy to be back on the rails.

Read: Oil price drop prompts sharp spending cuts in Saudi Arabia

2- Will the global landscape impact the regional one (MENA/GCC) or does the region have specificities or needs of its own to spur more M&As (the same or less)?

 We do expect some changes in the region in terms of movements in the index which could be trivial given that the world economy is down, price of petrol is down and so will be the M&A market for huge deals. The only deals that we expect to be on the rise is to restructure distressed firms and/or we expect distressed firms to be bought by multinationals.

2019 League Tables 

The exhibits in (2) present the changes in the rankings year-on-year and over a five-year period. Therefore, the direct comparison is with 2018 and 2014, providing both a trend and a current snapshot of the drivers contributing to positive or negative movements from an in-bound and domestic M&A perspective.

Read: COVID-19 pandemic brings Middle East economies to temporary standstill

Regional M&A Attractiveness

Exhibit 3 provides the regional rankings for the MARC M&A Attractiveness Index for 2019. The ‘Market Opportunities’ and ‘Market Challenges’ columns give the factor group range for each region, with the highest ranking factor group presented as the region’s most attractive feature or opportunity, whereas the lowest ranked factor group is shown as the major challenge which each region faces.