Mergers and acquisitions boom in Middle East
Cross-border mergers and acquisitions set to accelerate after a vibrant 2014, writes Issac John
After a strong year for cross-border mergers and acquisitions (M&A), the Middle East region is poised to witness a further acceleration in M&A activity in 2015 with the vibrant markets of the UAE — the world’s 19th most attractive economy for such activity — and Saudi Arabia offering attractive opportunities to international investors, experts and analysts said.
Key factors that will continue to spur M&A activity in the Middle East, in particular the GCC, include a spate of economic reforms undertaken by countries in the region, notably in terms of liberalisation of foreign investment, the active presence of investment arms of governments, the abundance of liquidity, especially in periods of high oil prices, experts argue.
“On top of these, smart investments by companies operating in the region coupled with growing risk appetites by investors to achieve higher returns also help drive M&A activity,” they said.
The latest research on M&A activity released by UAE law firm Baker & McKenzie Habib Al Mulla shows that outbound M&A activity in 2014 increased by 67 per cent in the Middle East compared to full year 2013 to reach $29.23 billion. The total value of inbound M&A activity in the region as of December 14, 2014 had already surpassed 2013, increasing by 53 per cent to reach $9.5 billion, data from Thomson Reuters reveals.
Hani Al Hamli, Dubai Economic Council secretary-general, has stressed that M&A represented one of the most important elements of corporate strategy as companies seek to grow, expand and diversify their portfolio.
Addressing a recent seminar, Al Hamli noted in his keynote speech that a key driving factor behind the growth in M&A is the accelerating pace of globalisation and trade, along with the decline in the cost of financing which is driven by intense competition among financial institutions.
“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.
He said 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.”
Inbound acquisitions in the region, in terms of deal value, 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 eight deals, according to data from Thomson Reuters.
The Media and Entertainment sector was the largest recipient of inbound M&A activity in terms of value with almost 36 per cent share. This was driven by the $3.2 billion sale of Orbit Showtime Network Co, a Dubai-based owner and operator of TV station, to an undisclosed US private equity firm. This is also the largest deal since 2010.
Outbound M&As fall in UAE
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 per cent compared to $1.29 billion in 2013.
The US is the largest acquirer of UAE companies, with eight deals worth $3.2 billion in total. Cayman Islands ($238 million) followed next in terms of deal value and India (four deals) in terms of deal count. Qatar is on the third spot both in terms of deal value ($150 million) and deal count (three deals).
The Mena M&A update by Ernst & Young (EY) shows that in the third quarter of 2014, the UAE accounted for 48 per cent of the number of inbound deals with the total value of inbound deals accounting for $4.26 billion or 93 per cent of the inbound deals into the region. For the Mena region as a whole, deal activity increased by 17 per cent in the third quarter of 2014, where 109 deals were announced compared with 93 deals in the third quarter of 2013.
In Saudi Arabia, total inbound deal value has increased by 91 per cent 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 the $562 million acquisition of Yanbu Company a manufacturer, wholesaler and retailer of gasoline; the $235 million acquisition of General Lighting Co JSC, a manufacturer and wholesaler of lighting fixture products; and the $147.3 million acquisition of Al Mada Towers. These transactions account for almost 80 percent of total deal value for 2014. China ($D562 million), the 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.
US, UK lead
For the outbound M&A activity that increased by 67 per cent to reach $29.23 billion in 2014, the largest recipients include the UK (45.7 per cent), the US (8.6 per cent), and South Korea (6.8 per cent).
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 five times.
The research report by Baker & McKenzie Habib Al Mulla shows that the outbound activity in the UAE in 2014 reached $4.52 billion, representing a 54 per cent 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 the UAE outbound M&A, representing almost 87 per cent of total deal value.
In terms of deal count, Egypt (11 deals), the UK (8 deals), the US (7 deals) and Turkey (five 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 the UAE-based companies, accounting for 78 per cent 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.
In Saudi Arabia there have been 33 outbound transactions in so far in 2014, with an aggregate amount of $2.59 billion, an increase of 115 per cent from $1.21 billion in 2013.
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