The pipeline of new Mergers and Acquisitions (M&As) and private equity deals in the region looks very robust despite a plunge in deal values and volumes in the first quarter of the year, experts say.
Challenges apart, there are clear signs that deals can increase in the region.
“Interestingly, family-owned businesses are looking at innovative ways to grow and are exploring the idea of outside investors to support those aspirations. Conglomerates are widening their reach and international players are looking at ways to access the growing middle class,” says Catherine Ford, from the Mergermarket Group, which provides intelligence and news services for mergers and acquisitions.
The findings of the Capital Confidence Barometer 2015 – a survey launched by EY at the Middle East M&A and Private Equity Forum – are mostly optimistic about the deals landscape in the region.
Here are the key highlights of the survey:
- 56 per cent of CFOs in regional firms believe their company’s deal pipeline will increase in 12 months
- 53 per cent of businesses in the MENA region are planning relatively larger deals in the coming year, compared to just 31 per cent globally.
- 68 per cent of CFOs believe that the number of MENA acquisition opportunities is improving.
It’s not only the rich oil exporters such as Saudi, Qatar, Kuwait and the UAE that are making the deals market in the region active by either acquiring assets, entering JVs or funding deals. The increasing political and economic situation is slowly helping Egypt to gain some traction in the deals landscape as well.
Ruth McKee AlGhamdi, Head of MENA, Mergermarket, explains the Egyptian market to AMEinfo: “The value of the M&A and deal count in Egypt saw a significant drop in 2014 and there is yet to be a pick-up so far this year, with only three deals announced so far, accumulating $384 million.
“While M&A seems to be somewhat subdued, there is a lot of talk about joint ventures in various sectors, particularly the renewable energy sector. Delays are expected, but industry sources say that the growth potential is very high in this sector.”
While more mergers and acquisitions are expected going forward in 2015, one should keep in mind that the Middle East had a slow start to 2015.
Only nine deals worth $1.8 billion were done in Q1, a 71.8 per cent decrease in deal value compared to Q4 of last year and the lowest deal count since Q4 2011.
A recent report from Mergermarket ranks the biggest transaction in Q1 2015 as the $1.5bn demerger of Orascom Construction to OCI N.V. shareholders. Based on the transaction, construction has been rated as the highest performing sector as far as deals are concerned.
According to the report, Qatar is seen as an active overseas investor in Q1 2015, with two deals worth $ 1.9bn, representing 46.4 per cent of overall market share.
In February, Qatar Holding acquired France-based construction company Vinci for $1.8bn and in the same month, Nasser Ahmed Ali A. Al Thani, a private investor, acquired Turkish hotel Kontes Beach Hotel for $8mn.
In terms of outbound M&A activity, Qatar is the only country to overtake the UAE in Q1 deal value since 2008.
Despite being the most targeted country within the Middle East region, the UAE undertook seven outbound deals worth $526mn in the first quarter, a substantial 80 per cent drop in deal value and 50 per cent drop in deal count when compared to Q1 2014, the report says.