Mena M&A activity falls in Q3

Dubai - The value of mergers and acquisitions in the Middle East and North Africa region during the third quarter was less than $3 billion, well below the average levels of the past six years, reflecting a low degree of investor confidence amid the region's political turmoil and the impact of oil price plunge.

The overall 12-month activity fell short from any sign of rebound, enduring the impact of the regional political turmoil and the spillover effects of a sharp decline in oil prices that are among the major factors weighing on investor confidence in the region, a report by Bureau van Dijk, according to a leading provider of business and M&A intelligence, and Mena Research Partners, a research outsourcing company.
"Despite the short- to medium-term challenges, when thinking long term, the region still depicts largely attractive economic fundamentals to sufficiently propel more transactions going forward," said the report released on Monday.
With the total number of completed deals generally declining since 2009 but slightly improved during the past two quarters relative to the first quarter of 2015, the announced value of M&As reached less than $3 billion during the third quarter of 2015, which is well below the average levels of the past six years, said the report.
While merger and acquisition activities remained at large, driven by a strong performance in GCC, the non-GCC countries attracted most of the count and value of completed M&A deals underlining weaknesses witnessed within oil-exporting countries, it said.
In fact, the GCC region accounted for only 45 per cent and 44 per cent respectively of the announced value and volume of completed deals during the past three months. Overall, the general trend prevailing to-date is that of larger ticket sizes in the GCC, as opposed to a larger number of smaller deals in other Mena countries.
"The third quarter recorded a slight decline on the second quarter of 2015 as value dropped from $2.999 billion to $2.668 billion in line with the overall global trend for the quarter. Conversely, volume increased quarter-on-quarter from 129 to 163," said Lisa Wright, Zephyr director.
"The lack of a very high value transaction appears to be the reason for the drop in value. The  highest deal value in third quarter was $314 million. Compared with recent quarters, the value of the region's largest deal in the quarter was low. Previous quarters have seen transactions worth in excess of $2 billion announced, thereby highlighting the importance of an individual deal's consideration to a quarter's overall performance," she added.
Foreign acquirers have remained one major component in the Mena M&A market, showing a minor regression to 2014 levels. During the first nine months, they have accounted for 52 per cent of the number of completed deals, slightly lower than the average numbers witnessed during the past five years.
Generally, expectations are bright for Africa and the Middle East, Latin America and Asia Pacific, which are all expected to see above-average increases in M&A appetite. However, according to KPMG Middle East and South Asia, despite this outlook, the Middle East is expected to adopt a cautious approach given the new low in oil prices that is forcing a number of countries in the region to run budget deficits.   
"The oil price drop, coupled with short-term volatility in global markets, on the back of a feared slowdown in the Chinese economy and continued uncertainty in Europe, will force investors to review their priorities. Governments in the region are expected to take a hard look at unplanned expenditure and streamline spending that will further limit money supply in the local economies,"  said Ramachandran Narayanan, partner and head of advisory in KPMG Middle East and South Asia. 
 The value of mergers and acquisitions in the Middle East plummeted more than 70 per cent during the first three months of 2015  to a three-year low, according to market tracker Mergermarket.
Nine deals completed in the first quarter were worth a total $1.8 billion, down 71.8 per cent compared to the fourth quarter of 2014.
- issacjohn@khaleejtimes.com