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Mergers and acquisitions rise in 2014; stronger growth seen in 2015

Stable markets such as the UAE and Saudi Arabia remain attractive to international investors

The number and value of cross border M&A activity in the Middle East has increased significantly in 2014, says a new research by UAE law firm Baker & McKenzie Habib Al Mulla.

“The Middle East has seen a very robust year in terms of both inbound and outbound M&A activity,” said Tom Thraya, UAE Head of Corporate/M&A for Baker & McKenzie Habib Al Mulla.

“The increasing trend looks set to continue in 2015, with stable markets such as the UAE and Saudi Arabia remaining attractive to international investors. Factors such as the UAE’s increasing importance as a business hub for the Middle East and Africa, and the opening up of Saudi Arabia’s stock exchange for foreign investors in 2015, are fueling optimism for a further acceleration of M&A activity in the region,”  he adds.

The total value of Middle East inbound M&A activity has already surpassed 2013, increasing by 53 percent to reach $9.5 billion, according to data from Thomson Reuters as of 14 December 2014.

In terms of deal value, inbound acquisitions were driven by the US (49.8 per cent), followed by China (10.3 per cent) and Switzerland (7.1 per cent). The US had the most number of transactions with 43 deals, followed by India and China, both with 8 deals, says Thomson Reuters data.

The Media and Entertainment sector was the largest recipient of inbound M&A activity in terms of value with almost 36 percent share.

In the UAE, the number of inbound M&A deals has fallen while the deal value has increased.

As of December 14, 58 deals have been announced so far this year, compared with 62 in 2013, with an aggregate value of $3.98 billion, an increase of 208 percent compared to $1.29 billion in 2013.

The US is the largest acquirer of UAE companies, with 8 deals worth $3.2 billion in total. Cayman Islands $238 million followed next in terms of deal value and India (4 deals) in terms of deal count. Qatar is on the third spot both in terms of deal value ($150 million) and deal count (3 deals).

In Saudi Arabia, total inbound deal value has increased by 91 percent to $1.2 billion, although the number of transactions has dropped to 17 deals.

The increase in deal value was driven by a few large deals including:

 

  • $562 million acquisition of Yanbu Co, a manufacturer, wholesaler and retailer of gasoline
  • $235 million acquisition of General Lighting Co JSC, a manufacturer of lighting fixture products
  • $147.3 million acquisition of Al Mada Towers

These transactions account for almost 80 percent of total deal value for 2014 YTD.

China ($562 million), Netherlands ($235 million) and the United Kingdom ($122 million) were the top acquirers in terms of deal value while Kuwait (3 deals) and the United States (2 deals) led by deal count.

Middle East outbound M&A activity up 67 per cent

Middle East outbound M&A activity in 2014 increased by 67 percent compared to full year 2013 to reach $29.23 billion. For the current year to date, the UK (45.7 per cent), the US (8.6 per cent), and South Korea (6.8 per cent) are the largest recipients of Middle East outbound M&A activity. In terms of deal count, the US (45 deals), the UK (18 deals), and Egypt (18 deals) have the most number of transactions.

In 2014, Middle Eastern companies invested heavily in Real Estate, Energy and Power, Financials, and Healthcare.

These four sectors account for over 80 per cent of total deal value. In terms of deal count, Media and Entertainment, Industrials, Real Estate, and Energy and Power have seen the most number of transactions.

Acquisitions in the Healthcare sector grew 6.5 times for the current period versus full year 2013, followed by Retail, which grew 5.8 times. In third place is Real Estate, which grew 5 times.

In the UAE, outbound activity in 2014 has so far amounted to $4.52 billion, representing a 54 percent decline from the full year 2013 figure of $9.91 billion.

For the current year to date, the UK (39 per cent), Ireland (22.2 per cent), Italy (14.8 per cent), and Egypt (10.7 per cent) dominate UAE outbound M&A, representing almost 87 percent of total deal value. In terms of deal count, Egypt (11 deals), the UK (8 deals), the US (7 deals) and Turkey (5 deals) had the most number of transactions. In 2014, the Financials, Energy and Power, and Industrials sectors have seen the highest value of investments by UAE-based companies, accounting for 78 percent of aggregate deal value.

Total investment in the Financial sector was mainly driven by the $1.6 billion acquisition of Travelex Holdings Ltd., a London-based provider of currency exchange services.

There have been 33 outbound transactions in Saudi Arabia so far in 2014, with an aggregate amount of $2.59 billion, an increase of 115 percent from $1.21 billion in 2013.

South Korea, the UK, and Egypt have been the largest recipients of outbound M&A activity with almost 96 percent of total deal value for the period. In terms of transaction volume, Egypt has the highest so far with 6 deals, followed by Spain and the UK with 4 deals each. The Energy and Power, Real Estate, and Materials sectors received the largest investment, representing almost 90 percent of total deal value for the period.

In terms of transaction volume, Industrials and Materials have been the most targeted industry with 5 deals each. Saudi Arabian Oil Company’s (ARAMCO) announced $1.96 billion acquisition of Korean S-Oil Corp. has been the largest transaction recorded so far since 2010.