“OIL PRICE DROP WILL NOT IM­PACT DEALS”

Deals per­tain­ing to Merg­ers and Ac­qui­si­tions (M&A) in the Mid­dle East, Qatar in par­tic­u­lar, are un­likely to be af­fected de­spite wob­bling oil prices and po­lit­i­cal un­rest, says Leif Zierz, KPMG’s Global Head of Deal Ad­vi­sory.

Qatar Today - - INSIDE THIS ISSUE - By V L Srini­vasan

Deals per­tain­ing to Merg­ers and Ac­qui­si­tions in the Mid­dle East, Qatar in par­tic­u­lar, are un­likely to be af­fected de­spite wob­bling oil prices and po­lit­i­cal un­rest, says KPMG's Global Head of Deal Ad­vi­sory Leif Zierz.

Zierz says un­cer­tain con­di­tions are noth­ing new for the re­gion which has wit­nessed fi­nan­cial down­turn and po­lit­i­cal cri­sis fol­low­ing Arab Spring and now is in the grip of oil price re­lated is­sues. While ev­ery­one is cau­tious, that has not changed the gov­ern­ment's spend­ing plans or in­vest­ments go­ing abroad.

“We don't know whether the cur­rent events will change the sit­u­a­tion dramatically,” says Zeirz.

“How­ever, there is noth­ing to sug­gest that they will im­pact the spend­ing plans or slow down in­fra­struc­ture projects, es­pe­cially in ar­eas on which the gov­ern­ments want to fo­cus, like out­bound in­vest­ments. How­ever we do know that Qatar will con­tinue to di­ver­sify its econ­omy in line with the Qatar Na­tional Vi­sion 2030 and this will have a pos­i­tive im­pact on the M&A land­scape,” says Zierz, who was in Qatar to ad­dress Heads of Deal Ad­vi­sory from across the Mid­dle East and South Asia (MESA).

Qatar leads GCC

Ac­cord­ing to Zirez, Qatar led the GCC in terms of the growth rate of M&A deals as the num­ber of com­pleted in­bound trans­ac­tions in­creased by 63%, from 8 to 13, com­pared with 20% in Kuwait, a 7% de­crease in the UAE and a 23% de­crease in Saudi Ara­bia from 2013 to 2014.

Qatar's num­ber of com­pleted out­bound trans­ac­tions rose by 85% in 2014, from 14 to 26, com­pared with 38% in Saudi Ara­bia, 12% in the UAE and a 18% drop in Kuwait. The to­tal value of out­bound ac­qui­si­tions rose from QR5.24 bil­lion ($1.44 bil­lion) in 2013 to QR14.49 bil­lion ($3.98 bil­lion). Th­ese in­vest­ments were mostly in com­mer­cial real es­tate, fi­nan­cial, hos­pi­tal­ity and en­ergy-re­lated sec­tors and some of the tro­phy as­sets that Qatar has in­vested in the past where the gov­ern­ment found more cash flow and yield-driven ap­petite rather than in green field or man­u­fac­tur­ing industrial busi­nesses.

“The in­crease in trans­ac­tions in Qatar is rep­re­sen­ta­tive of the rest of the world, where we can see the re­turn of deals mar­ket, and it's safe to say that progress in Qatar has been sig­nif­i­cant. Although M&A spend in the en­ergy sec­tor is high, it's clear that, as oil prices re­main low, Qatar's in­fra­struc­ture spend will have a pos­i­tive im­pact on en­sur­ing that the fre­quency and value of trans­ac­tions re­main high,” he says.

Giv­ing a global per­spec­tive of M&A deals, Zierz says the lat­est trends clearly in­di­cate that there has been an up­ward move­ment in the mar­kets in the last 12-15 months com­pared with the “jam of trans­ac­tions” caused by fi­nan­cial tur­moil a few years ago.

Due to a lack of debt fi­nanc­ing and con­fi­dence in the eco­nomic en­vi­ron­ment, many trans­ac­tions that ought to have taken place all th­ese years for strate­gic and re­struc­tur­ing rea­sons, were hap­pen­ing for the last one and a half year. The main driv­ers for this are strate­gic in­ter­ests of the cor­po­rates from around the world.

“There have been fast de­vel­op­ments in the global tech­no­log­i­cal en­vi­ron­ment and this, com­bined with abun­dant liq­uid­ity and solid profit lev­els in the cor­po­rate

“There have been fast de­vel­op­ments in the global tech­no­log­i­cal en­vi­ron­ment and this, com­bined with abun­dant liq­uid­ity and solid profit lev­els in the cor­po­rate en­vi­ron­ment in both ma­ture and emerg­ing economies, have re­sulted in a sig­nif­i­cant in­crease in the deal ac­tiv­ity across the world.”

LEIF ZIERZ Global Head of Deal Ad­vi­sory KPMG

en­vi­ron­ment in both ma­ture and emerg­ing economies, have re­sulted in a sig­nif­i­cant in­crease in the deal ac­tiv­ity across the world,” Zierz says.

Ac­cord­ing to him, th­ese deals are mostly hap­pen­ing in sec­tors like health­care, phar­ma­ceu­ti­cals and chem­i­cals and in ev­ery­thing that is af­fected by the im­pact of the tech­no­log­i­cal ad­vance­ments. It is also hap­pen­ing in the en­ergy sec­tor which in some ma­jor economies af­fected im­por­tant reg­u­la­tory changes.

“As far as the Mid­dle East is con­cerned, I would say that the ac­tiv­ity is also higher in two coun­tries – the UAE and KSA. We have a lot of out­bound deals hap­pen­ing from Sovereign Wealth Funds or large in­sti­tu­tions. Even fam­ily wealth is go­ing into out­bound deals,” he says.

Within the GCC, there is some ac­tiv­ity in limited sec­tors like food, re­tail in­dus­try, med­i­cal care and ed­u­ca­tion. The rest is out­bound, with Europe be­ing the favourite des­ti­na­tion. While it is limited in ex­tent to the US, in­vestors are ex­plor­ing new op­por­tu­ni­ties in the East.

More in­vest­ments

Saudi Ara­bia and the UAE gov­ern­ments are ex­pect­ing more IPOs as Mor­gan Stan­ley Cap­i­tal In­ter­na­tional is likely to up­grade Saudi Ara­bia from fron­tier to emerg­ing mar­ket in June this year. “With Kuwait al­ready open­ing up its mar­ket and al­low­ing 100% for­eign own­er­ship in the com­pa­nies re­cently, we have to see how th­ese mea­sures will cre­ate a more con­ducive at­mos­phere for a surge in M&A deals in the re­gion,” he says.

Qatar, ob­vi­ously on the back of high oil prices and sur­plus re­serves, has been ac­quir­ing strate­gic as­sets over­seas, mainly in Europe through SWF, HNWIs and in­sti­tu­tions. Venkatesh Kr­ish­naswamy, Head of Deal Ad­vi­sory with KPMG Qatar, says: “There are high ex­pec­ta­tions from the re­gion, and more specif­i­cally Qatar, with re­gard to out­ward in­vest­ments and it will be in­ter­est­ing to see whether lower oil prices will im­pact such plans in the com­ing years.”

Qatar's rev­enues are mostly from LNG sales which should be in­vested in as­sets which give good re­turns. The gov­ern­ment will con­tinue to look for strate­gic tro­phy as­sets that meet their in­vest­ment ob­jec­tives as they have done in the past. But given pri­or­i­ties in the lo­cal mar­kets and in terms of in­fra­struc­ture spend, they will be more cau­tious in view of the lower oil prices. “This cau­tion will ex­tend to where and how much they in­vest, as com­pared with when the oil price was $100. They will con­tinue to look for good in­vest­ment op­por­tu­ni­ties in mar­kets they are familiar with,” Kr­ish­naswamy says.

Leif Zierz feels that the gov­ern­ment should now look at new emerg­ing mar­kets like China, In­dia and South & East Asia coun­tries. How­ever, Europe will re­main a favourite des­ti­na­tion for in­vest­ments and that will not change.

IPO ac­tiv­ity

More IPO ac­tiv­ity is ex­pected this year, not only in Qatar but also glob­ally if you look at how strong the stock ex­change mar­kets are, mainly driven by huge liq­uid­ity, and in the economies like the US and Europe, where volatil­ity is at a very rea­son­able level, Zierg feels.

As far as new IPOs are con­cerned, Zierz says that for any com­pany to raise eq­uity from the mar­ket, it should have a good rea­son be­sides in­vestors' ap­petite. “The reg­u­la­tors are keen to see more com­pa­nies get listed, but Qatari firms have full ac­cess in terms of liq­uid­ity from banks and it is not dif­fi­cult for large busi­nesses to bor­row money from tra­di­tional sources. Hence, money is the not key driver for the com­pa­nies to go for an IPO; they wait for right time,” he adds

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