Telecoms, media, technology to see strongest M&A in 2017
The UAE remains the most attractive destination for M&As in the region.
Dubai - UAE likely to see the most activity in this sector
Telecoms, media and technology (TMT) sector could see the strongest levels of merger and acquisition activity in 2017 as across the Middle East and North Africa region M&A activity and value continued to decline in 2016.
The UAE is likely to see the most activity in this sector, with 11 deals reported to be in the pipeline out of the 17 currently up for sale or likely to come on to the market from the region, according to market intelligence data.
Mergermarket, a leading provider of M&A intelligence, pointed out that 2016 saw a dip in deal-making in the traditionally strong energy, mining and utilities sector, with the sector's share of the M&A market falling from 60.1 per cent to just 5.4 per cent ($4.7 billion to $1.4 billion). However, Mergermarket's Heat Chart for 2017 has identified at least nine deals in the M&A pipeline, which could indicate a resurgence for the sector.
Ruth McKee Al Ghamdi, head of Mena at Mergermarket, said there had been an uptick in deal making interest in the technology sector in the past year with disruptive and new digital technologies transforming industries across many sectors. "We see this trend continuing with a healthy number of deals in the pipeline and a number of regional tech companies now reaching Series A, B and C fundraising stages. The healthcare sector is continuing to prove resilient and a number of deals are expected to close in the coming few months, although high valuations in this space continue to be an issue for investors."
For the coming months, financial services is set to remain at the top of the industry rankings by value due to this year's acquisition of First Gulf Bank by National Bank of Abu Dhabi for $14.8 billion. The mega-deal accounted for 55.6 per cent of the Middle East's total deal value for 2016, with a further seven Financial Services deals in the pipeline. There are indications that the sector may end the year in an even stronger position than the record heights it hit in 2015. According to Mergermarket, industries that are experiencing the lowest levels of activity include the real estate and construction sectors, in which only two potential deals are anticipated. Moderate activity has been reported in the business services and leisure sectors, with six and five anticipated deals respectively.
In the Middle East and North Africa region, M&A activity and value declined in third quarter, recording 74 deals amounting to $5 billion, compared to 98 deals amounting to $6 billion in the same 2015 period, according to EY's Q3 2016 M&A report.
The GCC dominated deals in the third quarter, represented 92 per cent of total deal value and 77 per cent of total deal activity.
"Deal activity in third quarter decreased across all transaction types; inbound deal activity decreased by 42 per cent, outbound deals decreased by 24 per cent and domestic deals decreased by 10 per cent compared to the same 2015 quarter," EY said in a report.
The UAE was the most attractive destination for M&As in region, leading as the top target country. The country witnessed the largest deal in third quarter with the acquisition of Media.net Advertising Ltd by Investor Group from China for $900 million. In terms of sectors, media and entertainment, real estate and airlines were the top three target sectors by deal value in third quarter.
"Mena companies' interest in pursuing M&As is lower compared to October last year, and is currently below the long-term average level. The key driver behind this is lower CEO confidence, given the macro-uncertainties in the Mena region. Market fundamentals that are affecting M&A performance such as low interest rate and low growth rate are still prevalent," said Phil Gandier, Mena Transaction Advisory Services Leader, EY.
Unlike global respondents, who see a rebound in deal activity from six months ago, interest from Mena executives is on the wane, with 21 per cent expecting their company to pursue a merger or acquisition in the next year, according to the latest EY Capital Confidence Barometer.
Qatar and Egypt are particularly quiet on the M&A front, whereas the UAE is feeling most optimistic, with 37 per cent looking to make a deal.