M&A activity in Mena may rise as oil fuels confidence
dubai — Driven by improved optimism and confidence on the back of stabilising oil prices and economic reforms, the outlook for mergers and acquisitions activity is brightening in the Middle East and North Africa region, latest data released by EY shows.
Executives in the region are feeling more positive about the global economy, with 47 per cent expecting deal activity to increase in the next 12 months, according to the latest EY Capital Confidence Barometer (CCB).
According to the survey, 41 per cent indicate they have five or more deals in the pipeline, with 54 per cent of Mean companies looking to close deals over the next year.
“As oil prices continue to stabilise, and government initiatives foster greater economic certainty, Mena executives are feeling more optimistic that the economic conditions are right to return to deal making,” said Phil Gandier, Mena Transaction Advisory Services leader, EY.
Consequently, the M&A pipeline has never been better — both quality and quantity, he said.
“Furthermore, we expect the recent reversal of certain austerity measures in the GCC to result in more confidence in deal making.”
“Improving economic conditions are a contributing factor to the positive outlook of Mena executives. The pipelines remain robust and companies are feeling good about the quality of the deals in the market. We expect to see a significant uptick in deal activity over the next 12 months,” said Phil.
In the first quarter 2017, M&A activity in the region declined, recording 84 deals, compared to 115 deals in the same 2016 quarter, according to EY’s first quarter of 2017 M&A report. However, Mena deal values remained broadly stable reaching $18.2 billion in first quarter of 2017 compared to $18.4 billion in the same quarter in 2016.
The outbound deal value in- creased substantially by 636 per cent from $1.3 billion in first quarter 2016 to $9.3 billion in 2017 first quarter. The inbound deal value also rose exponentially from $0.5 billion to $5.7 billion year on year.
“On the contrary, the announced deal activity value for domestic transactions witnessed a significant decrease of 81 per cent in first quarter 2017 compared with the same period last year.”
Within the region, the overall top ten deals contributed over 90 per cent to the total deal value registered in the period. Saudi Aramco’s acquisition of a 50 per cent stake in Malaysian stateowned energy company Petronas’ Rapid project for $7 billion was the largest deal of the quarter. The biggest technology deal of the quarter was the acquisition of Souq.com by Amazon for approximately $650 million Amazon’s acquisition of Souq marks the company’s first move into serving the Middle East region.
Mena executives, however, expect a slowdown in global trade flows and an increase in protectionism, high fluctuation in currencies and capital markets, and increasing geopolitical uncertainty as significant economic risks. Market fluctuation and lower oil prices have 54 per cent of executives looking at organic opportunities first to meet growth objectives.
Anil Menon, Mena M&A and Equity Capital Markets leader, said the region’s executives consider growing market share as the main strategic driver for pursuing an acquisition.
— issacjohn@khaleejtimes.com