Saudi material sector leads top GCC M&A transactions during Q4 2019

Markaz: SAFCO closes largest deal with acquisition of SABIC Agri-Nutrients Investment Co

KUWAIT: Saudi’s material sector leads the top GCC M&A transactions during Q4 2019 as per a report recently issued by the Investment Banking Department at Kuwait Financial Centre “Markaz”. The Saudi Arabian Fertilizers Company (SAFCO) closed the largest deal throughout the quarter through its acquisition of a fellow materials company, SABIC Agri-Nutrients Investment Company. SAFCO acquired 100 percent of the firm’s share capital for a total consideration of $1.2 billion.

The second largest transaction involves China’s State Grid Corporation’s intention to acquire a 49 percent stake in Oman Electricity Transmission for a total value of $1.0 billion. The next transaction involved Ripplewood Advisors, a US-based private equity firm, acquiring a 6 percent stake in Banque Saudi Fransi for a total consideration of $578 million. Following that, Saudi’s Investment Recycling Company fully acquired Global Environment Management Services, a local industrial waste management firm, for $453 million. The National Bank of Bahrain (“NBB”) announced its intention to acquire a 71 percent stake in Bahrain Islamic Bank (“BISB”) for $234 million. Based on the latest offer, NBB will acquire over 754 million shares of BISB at $0.3 per share or 0.167 NBB shares per BISB share.

GCC M&A growth According to Markaz’ report, the number of closed M&A transactions in the GCC during Q4 2019 decreased by 8 percent compared to Q4 2018 however it increased by 63 percent quarter over quarter (“QoQ”). Among the region, the UAE reported the highest increase in the number of closed transactions QoQ, while Saudi Arabia recorded the highest increase compared to Q4 2018.

Acquirers and targets

A majority of the transactions completed during Q4 2019 and Q3 2019 were carried out by GCC acquirers. Of the total number of transactions closed during Q4 2019, GCC acquirers accounted for 71 percent while foreign acquirers accounted for 25 percent. The remaining 4 percent represents transactions for which the buyer information was not available. The market witnessed a similar pattern during the previous quarter in Q3 2019 as GCC acquirers accounted for 67 percent of the total number of closed transactions while foreign acquirers accounted for 30 percent.

Overall, a majority of the GCC acquirers preferred to acquire local companies as opposed to targeting foreign players. Aside from Bahrain, the remaining GCC acquirers only closed a minimum of one transaction outside of the GCC whereas UAE acquirers were active in both the local, regional and foreign markets. UAE acquirers reported a total of seven closed transactions that involved foreign targets. In addition, Qatari acquirers didn’t complete any transactions within their home country however, they completed transactions in the region and internationally.

Foreign buyers

In comparison to the previous quarter, the market attracted a higher level of interest from foreign buyers throughout the quarter. Overall, there was a total of 12 closed transactions, which is 33 percent higher relative to Q3 2019 as well as Q4 2018. Foreign buyers have predominately acquired companies within the UAE, which is evident based on the number of transactions that involved UAE targets (~84 percent). The remaining transactions involved Bahraini and Saudi targets, each of whom represented 8 percent of the total transactions completed. Kuwait, Oman and Qatar recorded no foreign activity throughout the quarter.

Sectorial view

The transactions that closed throughout the quarter spanned across multiple sectors unlike the previous quarter whereby 60 percent of the total activity was concentrated within four sectors. The sectors that witnessed the greatest level of activity throughout Q4 2019 were the Industrials sector and the Financials sector, which accounted for 17 percent and 15 percent of the total number of transactions respectively. The remaining transactions predominately fell within the following four sectors: Consumer Discretionary, Consumer Staples, Healthcare and Real Estate. Collectively, these four sectors accounted for 40 percent of the total activity.

In addition, the Real Estate sector witnessed a slower season last quarter however, it observed a high level of activity throughout Q4 2019, in which it recorded a total of 5 closed transactions. On the other hand, the Energy and IT sectors recorded the greatest drop in the level of activity relative to the previous quarter.

Deals pipeline

By the end of Q4 2019, there was a total of 14 announced transactions in the pipeline, which translates into a 17 percent growth QoQ. Roughly 36 percent of the these transactions involved Saudi targets, followed by the UAE and Oman, who accounted for 29 percent and 14 percent of the announced transactions, respectively. Bahrain, Kuwait and Qatar had each announced one transaction throughout the quarter.