Increasing spending by private equity, investor groups and family businesses could boost mergers and acquisitions (M&A) in the Mena region in 2015, Mergermarket Group says in its report.
Mergermarket polled legal, banking, advisory and PE sources for the report.
Sectors including education, healthcare and food and beverage are expected to see the highest levels of M&A activity in the GCC, a private equity (PE) source says.
Other sectors of interest are oil and gas services, financial services, pharmaceuticals and real estate.
The sources agree that intraregional or domestic deals and outbound deals from family businesses and funds as well as a marked increase in inbound activity expected from strategic players will be the most common deals.
Increasingly, companies from the UAE are looking at African mining, oil and gas, healthcare and education sectors.
M&A deal sizes are growing with a greater number being struck in the $50 million to 100m and more region as businesses in the region mature and multiples subsequently rise, the sources say.
The region has moved towards becoming a seller’s market, Simi Nehra, head of M&A, KPMG Lower Gulf says.
“Over the past 18 months there has been a significant pickup in corporate valuations. Buyers that are now liquid are looking to deploy capital and are under pressure to place higher bids to secure a deal due to more competition,” he adds.
To date, Mena’s 101 deals are valued 31.4 per cent lower than during the same period in 2013 at $19.3 billion. This compares to the 130 deals valued at $28.2bn in 2013.
Saudi Arabia has seen 15 deals so far this year valued at $880m, down 64.7 per cent by value, with 12 fewer deals compared to the whole of 2013.
The UAE has also experienced a slowdown with 39 deals worth $6.7bn, down 41 per cent from $11.4bn last year.
DP World’s November acquisition of Economic Zones World FZE from Port and Free Zone World FZE (PFZW) for $3.5bn was Mena’s largest deal this year.
Fonds National d’Investissement’s agreement to acquire 51 per cent of Algeria’s Orascom Telecom Algerie from Egypt’s Global Telecom Holding for $2.64bn comes after.
In Qatar, Labregah Real Estate Company announced it has agreed to acquire a 95 per cent stake in Barwa Commercial Avenue Company from Barwa Real Estate Company for $2.5bn.
While the proportion of total inbound M&A value dropped to less than 80 per cent – $21.3bn – for the first time in two years, Mena investors have looked outbound, demonstrated by this deal count hitting a post-crisis high.
The 105 outbound transactions represent the first time since 2008 that the region has seen more than 100 such deals. These have totalled $19.5bn so far this year, 60.6 per cent more than in 2013.
Private equity deal sizes have been creeping up as houses are raising more substantial funds and are looking to conduct larger minimum deal sizes, Ziad Awad, CEO of Awad Advisory says.
“It was common a few years ago for some funds to go as low as $20m-$30m, now funds are indicating to us a minimum size of $50m,” he adds.
The GCC attracted more interest from US and European investors during 2014 and this is expected to continue through 2015, a PE source says.
Funds are aware that the Middle East, and particularly the GCC, can offer opportunities for regional companies that can become global players, the source says.
There are a number of large deals in the marketplace that are attracting international private equity players, Charles Fuller, partner at Latham & Watkins says.
Kuwaiti fast-food operator, Americana, and Lebanese retailer, Azadea Group, were highlighted as two such sales processes that have generated private equity interest.
An unconfirmed report says a buyout group involving KKR and CVC Capital Partners submitted a joint offer for Americana, the $3.8bn operator of KFC and Pizza Hut restaurants in the Middle East.
In 2015, the UAE, Saudi Arabia and Egypt are expected to see the most M&A in Mena.
In Egypt, M&A activity will likely continue to target listed and large companies, particularly those in the food and beverage and pharma sectors, according to an investment banker.
With a population of more than 90m, the consumer and defensive sectors in Egypt are seen as the most attractive sectors for investors.
BiscoMisr, valued at around $125m, and Arab Dairy ($56m) have attracted takeover bids from Gulf and international investors.
The Egyptian stock exchange is trying to attract large companies to the market. This includes Emaar Misr, Etisalat Misr (Etisalat Egypt) and Orascom Development, the banker said.
Beltone Financial says it is preparing to list four companies during the first half of 2015 with a total value of around EGP2bn ($280m), according to press reports.
Egyptian advisory firm Fincorp is also preparing IPOs for two large companies in the real estate and food sectors, according to a company source. The IPOs are expected during 2015, he adds without elaborating.
The UAE financial services sector has potential for more deals, Fuller says.
Regional banks acquiring assets of local peers or foreign banks could become a feature next year, he says.
The pressures the foreign banks receive from regulators to improve their capital adequacy ratios and the pressures from their shareholders to improve profitability will lead to a retrenchment from emerging markets such as the UAE, which are competitive and in which local banks, as they acquire more talent and have access to ample liquidity, end up being much more dominant players and get more market share in the local and regional lending markets, Awad notes.