Saudi Arabia ranked as 'transitional' market in first of its kind M&A maturity index

Co-author of the Maturity Index study and Director of MARC, Professor Scott Moeller.

• Text size
•  
•  

The Gulf States including the UAE, Saudi Arabia, Qatar, Bahrain, Oman and Kuwait, as well as Jordan, score as 'transitional' markets in the new study, while Egypt is identified as an 'emerging' market for M&A activity.

The Cass MARC M&A Maturity Index, sponsored by Ernst & Young, Allen & Overy, Credit Suisse and Mergermarket, is the first of its kind and ranks the maturity of 175 countries for M&A activity according to their regulatory, economic, financial, political, technological and socio-cultural environments. The index has a 0.81^[1] correlation with M&A activity; more than double that of the World Bank Group's 'Protecting Investor Index', which has a correlation of just 0.30.

Unsurprisingly, traditional bases for M&A activity, such as the UK, US and Japan, top the rankings. However, Asia, including South Korea, Singapore and Hong Kong, also emerges as a favourable region for M&A purposes.

While the region presents a relatively stable political environment with a favorable regulatory system, the research shows it lags behind in terms of technological and socio-cultural developments. According to the study a country's technological advancement is the most important driver of M&A activity in the 'transitional' development stage, explaining 40% of the differences in M&A activity between countries.

Phil Gandier, Head of Transaction Advisory Services at Ernst & Young Middle East and North Africa said: "It is clear from historical data that with greater M&A market maturity comes greater sustained deal flow, irrespective of economic cycles. Performance of regional M&A markets in 2010 indicates that the appetite for deals is growing. The region is moving up the fast growing 'transitional' category and is poised to escalate deal flows, even though more investment in technology and financial infrastructure is needed. With an average score of 2.8, the Middle East's relatively new M&A markets have undergone rapid development over the past five years as compared to the mature markets who have an M&A history of many decades."

The UAE ranks 29^th on the index, with a high overall MARC score of 2.2 (almost 80%) which indicates that it is relatively mature for domestic and inbound cross-border M&A purposes. The index classifies the UAE as a 'transitional' market, but predicts that it will reach the 'mature' stage by the time of the index update report expected next year.

The UAE's strong position is linked to features such as its high level of political stability and low levels of corruption, with a score of 1.3 for its political environment (close to the 'mature' market average of 1.1). However, the country's score of 3.0 for its technological environment is significantly worse than the 'transitional' market average, indicating that increased investment and development is necessary in this area before the UAE can be viewed as a 'mature' market.

Saudi Arabia, Qatar, Bahrain, Oman, Kuwait, all achieve similar scores on the index, ranging from (2.6-2.9 / approximately 52% - 58%) and are also classified as 'transitional' markets with growth potential. Considered to be of high interest to foreign companies, these markets are becoming increasingly more active in the global M&A market, but further development is needed to boost technological output and to improve socio-cultural factors in order for these markets to reach 'mature' level.

Representing the wider Middle East, Jordan is placed on the cusp of the 'transitional' market category with a score of 3.0, while Egypt is classified as an 'emerging' market with an index score of 3.1. Despite Egypt's ranking placing it close to the 'transitional' market average for regulatory factors, the country's low political score, as well as weakness in technological and socio-cultural factors is holding it back from reaching the transitional development phase.

According to the study the proportion of M&A deals involving firms from 'emerging' market countries has enjoyed steady growth since the 1990s. In 1998, the proportion of 'emerging' market deals was just above 10%, a figure which had more than doubled to over 25% in 2009, making these 'emerging' markets important to watch.

Co-author of the study and Director of MARC, Professor Scott Moeller, said: "The Cass MARC M&A Maturity Index provides a robust illustration of M&A maturity on a country level and can function as a practical starting point for discussion around deal-making in lesser known markets. As we update this study annually, we will begin to see patterns emerge and it will be possible to track regional M&A maturity over time."

Perhaps one of the most unexpected findings from this study is that more M&A deals tend to occur when political instability is high, but only in 'transitional' markets. This finding suggests that political instability provides opportunities for dealmakers and investors, even though the risks are correspondingly high.

The analysis of what drives activity at various stages of M&A maturity also reveals that although advanced levels of development of the country's technological and political environment is a prerequisite for M&A maturity, this has virtually no differentiating effect on M&A activity at the mature level . Instead it is socio-cultural and regulatory factors that are the critical drivers.

The Cass MARC M&A Maturity Index gives a score from one to five (one being fully mature for M&A purposes) for each of the 175 countries rated. The country index is calculated by using an average weighting of six groups of factors which have been identified as being critical for a market to attract and sustain M&A activity. These include regulatory (e.g., rule of law and regulatory quality), economic (e.g. GDP growth and economic freedom), financial (e.g., stock market capitalisation and access to financing), political (e.g., political stability and corruption of officials), technological (e.g., R&D expenditure and innovation) and socio-cultural environments (e.g., people, talent and labour skills).



MARC - Mergers & Acquisitions Research Centre

MARC is the Mergers and Acquisitions Research Centre at Cass Business School, City University London - the first research centre at a major business school to pursue focussed leading-edge research into the global mergers and acquisitions industry.

MARC blends the expertise of M&A accountants, bankers, lawyers, consultants and other key market participants with the academic excellence of Cass to provide fresh insights into the world of deal-making.

Corporations, regulators, professional services firms, exchanges and universities use MARC for swift access to research and practical ideas. From deal origination to closing, from financing to integration, from the hottest emerging markets to the board rooms of the biggest corporations, MARC researches the wide spectrum of mergers, acquisitions and corporate restructurings.

The Centre is proud to have its senior sponsors, Allen & Overy, Credit Suisse and Ernst & Young, and sponsor, Mergermarket, as research partners.

Cass Business School

Cass Business School, which is part of City University London, delivers innovative, relevant and forward-looking education, training, consultancy and research. Located in the heart of one of the world's leading financial centres, Cass is the business school for the City of London. 

Our MBA, specialist Masters and undergraduate degrees have a global reputation for excellence, and the School supports nearly 100 PhD students.  Cass offers the widest portfolio of specialist Masters programmes in Europe and our Executive MBA is ranked tenth in the world by the Financial Times.

Cass has the largest faculties of Finance and Actuarial Science and Insurance in Europe.  It is ranked in the top 10 UK business schools for business, management and finance research and 90% of the research output is internationally significant.

Cass is a place where students, academics, industry experts, business leaders and policy makers can enrich each other's thinking. For further information visit: www.cass.city.ac.uk.

-Ends-

About Ernst & Young MENA
The MENA practice of Ernst & Young has been operating in the region since 1923.  For over 87 years, we have evolved to meet the legal and commercial developments of the region. Across the region, we have over 4,200 people united across 20 offices and 15 Arab countries, sharing the same values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com/me  

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com  

For more information contact:
Anne Howard / Georgia Thompson
Polaris Public Relations
Tel : 04 3415555
Email : a.howard@polaris-me.com  / g.thompson@polaris-me.com

[1] A score of 1.0 would be a perfect correlation; a score of 0 means no correlation.

© Press Release 2010