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Mena confidence in global, local economies hits two-year high

Confidence in global and local economies is at a two-year high among executives in the Middle East and North Africa, with 74 per cent of survey respondents seeing an improvement in their local economies.

According to EY’s Mena Capital Confidence Barometer, or CCB, 61 per cent of survey participants said the global economy is improving, up from 32 per cent six months ago. Significantly, only three per cent said the economy is declining, down from 15 per cent six months ago and 14 per cent a year before.

“As a blend of frontier and emerging markets, Mena countries possess a number of unique advantages. Cash levels in Mena businesses continue to remain high, this coupled with a diminishing valuation gap between buyers and sellers could lead to more deal closures over the coming months. Additionally, many Mena companies have promising deal pipelines which could be a catalyst for more transaction activities,” said Phil Gandier, Mena head of transaction advisory services at EY.

The Mena CCB is a bi-yearly report that gauges regional corporate confidence in the economic outlook and identifying boardroom trends and practices for businesses to help manage their capital agendas. The survey respondents are senior executives from large regional companies and the survey is conducted by the Economist Intelligence Unit.

Strong evidence that the recovery is real can be found among respondents’ perception of various financial indicators. Mena executives are substantially more upbeat about local market conditions than they were in October, with 78 per cent positive about corporate earnings — more than 20 per cent points higher than six months earlier. Similarly, 60 per cent are optimistic about equity valuations — the highest number in the past year.

Q1 Mena M&A trends

Announced deal values in the Mena decreased from $11.2 billion in first quarter of 2013 to $7.1 billion in January-March quarter this year, reflecting a decrease of 36 per cent. In first quarter of 2014, about 90 deals were announced as compared to 109 deals in same quarter last year.

“Due to boardroom agendas having an increased focus on cost optimisation and operational efficiency, Mena executives report that acquisitions are expected to make up a smaller portion of revenue growth value for the current fiscal year. Mena companies are ,however, still overwhelmingly upbeat about the outlook for M&A volume growth over the next year, with 75 per cent expecting to see an improvement in M&A volume growth,” said Anil Menon, Mena M&A leader at EY.

Mena companies report a larger deal pipeline than their global counterparts, with 38 per cent reporting five or more deals on hand for the next year, compared with just 15 per cent of global respondents.

“When it comes to the propensity of Mena companies to engage in M&A, there are significant disparities across individual sectors. Companies in the automotive, life sciences and mining and metals industries report the highest appetite to acquire, while those in the oil and gas and power and utilities industries stated a lesser acquisition appetite,” said Menon.

Cash is clearly the preferred form of M&A financing for Mena companies, with 69 per cent saying it would be their primary source; this is significantly higher than the 36 per cent of global companies who prefer cash.

Over half of Mena respondents (53 per cent) say they are confident in credit availability at the local level, equivalent to levels a year earlier, and down from 59 per cent six months ago. Yet, the number reporting a decline in credit confidence has also fallen steadily to six per cent in the current survey, compared with 10 per cent six months earlier and 12 per cent a year ago.

— business@khaleejtimes.com