UAE, Saudi Arabia lead Mena M&A activity in H1

dubai - Technology, real estate and consumer products were top three sectors by deal value

With the UAE, Saudi Arabia and Egypt recording vibrant merger and acquisition (M&A) activities, the overall deal activity in the first half of 2016 was largely consistent with the same 2015 period despite a sluggish macro-economic situation in the Middle East and Africa at the beginning of 2016, EY said in a report.
Announced deal value in the Mena region declined to $19.7 billion in the first half of 2016, a decrease of 10 per cent, from $21.9 billion in the same 2015 period. Technology ($4.4 billion), real estate ($4.2 billion) and consumer products ($3.7 billion) were the top three sectors by deal value in the first six months.
"With modest recovery in the macro-economic situation, the outlook for M&A in H2 2016 remains cautiously optimistic and the deal activity on a full-year basis in 2016 is expected to mirror the performance in 2015," said Phil Gandier, Mena transaction advisory services leader of EY.
Both from a deal activity and value perspective, a significant portion of technology and real estate deals were outbound in the first half. In line with the trend noticed in the corresponding 2015 period, acquisition capital allocation to outbound transactions was at 52 per cent of the total deal value. Europe and the US continued to be the top two destinations for outbound transactions.
"Domestic M&As had a positive performance in the first half of 2016, recording an increase in value of 67 per cent in H1 2016 compared to 2015 first-half. During this period, consumer products, industrial products, real estate, banking and capital markets witnessed significant deal activity," said the report.
Uptick in activity
Anil Menon, Mena M&A and equity capital markets leader, EY, said improving business sentiment and investor confidence are expected to result in an uptick in domestic M&A activity during the second half, especially in consumption-led sectors in key markets such as Saudi Arabia and the UAE.
According to Baker & McKenzie's Global Transactions Forecast, amid signs that Brexit may erase $1.6 trillion from global M&As over five years, the Middle East, driven by the UAE, recorded an increase in both inbound and outbound cross-regional M&A activity in the first half of 2016.
While global M&A so far this year is down 16 per cent to $1.5 trillion from the same period in 2016, the Middle East recorded a growth in cross-border activity, with the UAE standing out as the most active country in the region in respect of both inbound and outbound investment. In the second quarter, global cross-border M&A volume and values were subdued as investors held their breath, but the Middle East saw an increase in both inbound and outbound cross-regional activity in the first half of 2016, a recent study by the law firm said.
Will Seivewright, corporate/M&A partner at Baker & McKenzie Habib Al Mulla based in the UAE, said cross-border M&A activity in the Middle East has fared relatively well in 2016 off the back of a record-breaking 2015, despite the volatility across global economic markets.
"The underlying economic fundamentals, such as anticipated GDP growth in the UAE and Saudi Arabia, continue to draw investors to the region, and we expect cross-border deal activity to remain steady as organisations begin to strategically prepare for each country's long-term development plans leading up to 2020 and beyond," said Seivewright.
Outbound investment
Zahi Younes, corporate and securities partner at Baker & McKenzie's associated firm in Riyadh, said: "Risk factors continue to influence investment decisions, but we are already seeing more strategic and focused outbound investment from the Middle East."
GCC countries' increasing efforts to diversify their investment portfolios will change the M&A landscape, allowing them to become key strategic investors around the world and enabling international investors to capitalise on opportunities, said Younes.
- issacjohn@khaleejtimes.com