Oil has little impact on Mena M&As
$50b-to$60b market, however, seen to remain flat in 2016
Low oil price is having little impact on mergers and acquisitions strategies in the Middle East and North Africa, but EY predicts that the region's $50 billion to $60 billion M&A market will remain unchanged this year.
According to the latest edition of the EY Capital Confidence Barometer, low oil price is having little impact as Mena executives continue their steadfast pursuit of deal-making. Of the Mena executives surveyed, 37 per cent expect to actively pursue acquisitions in the next 12 months.
Geographically, Mena companies are sticking close to home, with four out of five of their top deal destinations residing within the region, according to the CCB. The first quarter of 2016 saw a 43 per cent increase in domestic deal volume, rising from 21 deals in the first quarter of 2015 to 30 deals in the past quarter.
In the Mena, distressed asset sales are playing a more prominent role in deal-making, largely because of a tightening of capital. Within many countries, governments are being given priority access to available capital, leaving less capital available to private enterprises, and particularly family-owned businesses.
Phil Gandier, Mena transaction advisory services leader, said: "SMEs in the Mena are being forced to take a hard look at their portfolios and shed any non-core assets in an effort to either shore up their balance sheets to weather any economic uncertainties or release cash to fund potential M&A activity. We are starting to see more portfolio review/optimisation initiatives than we ever seen in the Mena region and this will drive M&A activity."
Disparities in vendors' price expectation versus buyers' valuation have created a price dislocation with the equilibrium price moving closer to buyer valuations. "Price dislocations stem largely from inconsistent and disparate views on macro and sector outlooks. In many instances, forward projections related to valuations are being subjected to increasingly growing buyer-scrutiny whereby buyers are looking to ensure that commercial realities and market sentiment are being factored in to company projections. As a result, sellers are becoming increasingly pressed to price some of the macro risks into deal pricing," said Anil Menon, Mena M&A and IPO leader at EY.
Trends dominate M&A activity
Disruptive trends, such as changes in consumer behaviour, have more than one-third of Mena companies looking for middle market deals that can transform their businesses to compete in a changing consumer landscape.
In addition to pursuing transformative deals that enable Mena companies to adapt to shifting customer sentiment, Mena executives are focusing on organic strategies to attract and retain customers to drive growth. Consumers are becoming more prudent about their spending. In response, businesses are doing everything they can to focus on the customer experience in an effort to dissuade them from looking at lower-value options.
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