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MENA mergers and acquisitions up to Q3 2020 and 2021 outlooks for UAE, Saudi

Mergers and acquisitions in MENA seem to have survived COVID-19, despite weaknesses and the absence of mega-deals. Will 2021's investment climate be a rebound year for Saudi and UAE?

M&A transactions with any MENA involvement reached $58 billion during the first 9 months of 2020 54 % of MENA respondents say they plan to actively pursue M&A in the next few months going into 2021 MENA debt issuance reached $92.4 bn during the first nine months of 2020

Refinitiv released the Middle East and North Africa (MENA) investment banking analysis for the first nine months of 2020. 

According to the report, investment banking fees generated in the Middle East and North Africa reached an estimated $895.7 million during the first nine months of 2020, up 4% from the same period in 2019. $361.4 million worth of advisory fees were earned from completed M&A transactions in the region, up 23% from last year. 

Meanwhile, equity capital markets’ underwriting fees declined 20% to $44.6 mn, marking the lowest first nine-month total for equity fees in the region in four years. 

The UAE generated the most fees, a total of $361 mn accounting for 40%, followed by Saudi Arabia with $268.3 mn.  

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Mergers & acquisitions

The value of announced M&A transactions with any MENA involvement reached $58 billion during the first 9 months of 2020. It fell 52% in value due to the absence of mega-deals like the one with Saudi Aramco’s agreement to buy a stake in Saudi Basic Industries Corp (SABIC) for $69 bn. 

About $6.3 bn worth of deals were announced during Q3, 2020, down 82% quarter-on-quarter which was boosted by two mega deals: Saudi’s National Commercial Bank (NCB) acquiring Samba Financial Group for $15.6 bn and a consortium of investors agreeing to buy ADNOC gas pipeline assets for $10 bn.

Despite scoring the second-highest first nine-month total of all-time, domestic M&A registered a 71% decline from last year to $25.2 bn, again due to the Aramco/SABIC deal.  

Inbound M&A, involving an acquirer from outside of the region, increased 36% to an all-time year-to-date high of $22.5 bn, while outbound M&A declined 47% to $5 bn.

The financial sector was most active, with deals targeting financial companies accounting for 40% of total M&A, followed by Energy & Power with 21%.  Saudi was the most targeted nation, followed by the UAE and Egypt.

Morgan Stanley topped the any MENA involvement announced M&A financial advisor league table during the first nine months of 2020 with a 45% market share. 

2021 Outlook

In the UAE, 56% are looking to make deals in the next year, vs. 45% who expressed this view in October 2019 when planning 2020.

Conversely, in Saudi, intentions are down from 63%.

In Egypt, although it would appear executives have lowered their expectations, deal intentions remain higher than the long-term average of 39%, with 49% expecting to be active in the M&A market

54 % of MENA respondents say they plan to actively pursue M&A in the next few months going into 2021.

In an interview with Mubasher, Managing Partner at ARKAD Advisors, Mustapha G. Boussaid, observed that the local M&A market size in Saudi Arabia is to reach $1.2 bn during 2021, excluding initial public offerings (IPOs) and milestone deals.

In addition, the In-Kingdom Total Value Add (IKTVA) program, which aims to boost the Saudi energy sector competitiveness, was created by Saudi Aramco and is now supported by various bodies like Dussur and Nusaned. This encourages all international firms yearning to invest and work in the Saudi market to conclude cooperation agreements and strategic alliances and enter into M&A deals with Saudi corporates.

The consumer sectors lead the M&A transactions in the kingdom, and this is mainstream in the middle market. Local deals and direct foreign investments (DFIs) mainly target healthcare, education, and electronic commerce (e-commerce) spaces, with the latter acquiring the lion’s share of M&A operations over the past five or six years.

Read: This is what Aramco’s Q3 profit numbers mean for Saudi’s economy

Equity capital markets

MENA equity and equity-related issuance totaled $2.6 bn during the first nine months of 2020. 

Third-quarter issuance reached $1.7 bn as Abu Dhabi National Oil Co (ADNOC) sold $1 bn worth of shares in ADNOC Distribution, and Dubai-based Yalla Group raised nearly $140 mn through its New York listing.   

Debt capital markets

MENA debt issuance reached $92.4 bn during the first nine months of 2020, up 8% from the value recorded during the same period in 2019.  

About $52.4 bn was recorded during the second quarter of 2020, followed by $20.5 bn during the third quarter. 

The UAE and Saudi were the most active issuer nations during the first nine months of 2020 with $34.7 bn and $21.9 bn in bond proceeds, respectively.   

The financial fallout from the coronavirus pandemic will keep fueling debt issuance from the Middle East into 2021, while also stoking M&As as companies seek to consolidate, according to JPMorgan Chase & Co.

The UAE and Saudi will be the main drivers.

The first six months saw $72 bn of bond issuance from the region, the busiest start yet.

Meanwhile, non-resident capital inflows to the MENA region will edge up slightly in 2021 to $177 bn, equivalent to 6.6% of GDP.

Till November 2020, hard currency bond issuance by Saudi, UAE, Qatar, Bahrain, and Oman has amounted to $91 bn, as compared with $99 bn for the whole of 2019. 

“We project gross public external financing needs of the region at about $100 billion in 2021, driven largely by the six GCC countries. Strong demand for high-quality assets from the region will remain at least for the next few years, given the large financial buffers in the form of official reserves and sovereign wealth funds (SWFs), and the resumption of fiscal adjustment,” said Garbis Iradian, chief economist for MENA at the Institute of International Finance (IIF).