14 July 2015
JEDDAH: Saudi Arabia and United Arab Emirates are among world's top 10 countries forecasted to experience the fastest M&A and IPO growth until 2020, reveals a unique new forecast by global law firm, Baker & McKenzie.

After a long and stuttering recovery from the global financial crisis, the forecast, in association with Oxford Economics, predicts an uptick in global transactional activity exceeding $3.4 trillion in 2017, based on global economic activity increasing to an average growth rate of 2.9 percent per year over the next three years, compared to an annualized 2.5 percent since 2012.

The report indicates that M&A activity in the UAE will rise from $2.2 billion in 2014 to $6.8 billion in 2015. The forecast also shows that deal activity will stabilize from 2016 to 2020, albeit with a peak of around $5.7 billion in 2018.

"Strong M&A activity in the UAE in the first half of 2015 is expected to result in a significant increase in the value of completed M&A deals by the end of the year compared to 2014, despite the volume of deals remaining relatively flat," said Will Seivewright, corporate/M&A partner at Baker & McKenzie Habib Al-Mulla, based in Dubai. "We expect M&A transactions to peak in 2018 before slowing as part of a predicted downturn in global financial markets."

The new report titled, "Global Transaction Forecast: The Impact of Macro Trends on Future M&A and IPO Activity," in partnership with Oxford Economics, undertakes quantitative assessments and predicts activity across completed M&A and IPOs in 37 countries until the end of 2020. Linking economic outlook with corporate activity, the report has used modeling techniques relating to historic changes in transaction flows. The report draws on structural and cyclical transaction drivers including national income growth, equity prices and interest rates.

As per the findings, domestic IPO issuance is projected to fall in the UAE from $3 billion in 2014 to $581.7 million in 2015, before peaking at $1.2 billion in 2018. In Saudi Arabia, it is expected to fall from $6.4 billion in 2014 to $1.8 billion in 2015, before peaking at $2.7 billion in 2019.

"Despite these dampened prospects, Saudi Arabia is off to a strong start this year, driven by an increase in domestic M&A deals," said George Sayen, head of corporate practice group at Baker & McKenzie's associated firm in Riyadh (legal advisers, Abdulaziz I. Al-Ajlan & Partners in Association with Baker & McKenzie Limited). "The opening of the Saudi stock exchange to foreign investors could also attract foreign capital inflows and increase cross-border activity."

Governments in the UAE and Saudi Arabia are diversifying their economies and facilitating job creation to reduce the impact of oil price volatility and grow their non-oil economies. Ultimately, this will allow the GDP in both countries to grow with an annual rate of 3.5 percent and 3.2 percent respectively, compared to the global average of 3 percent.

The report also includes a 'transaction attractiveness' index by country based on past transactional activity and a weighted average of 10 key economic, financial and regulatory drivers of M&A and IPO activity.

The UAE is forecasted to rank higher than the global average with key drivers such as ease of doing business, freedom to trade and legal structure.

"We expect the increased interest from global private equity investors to continue, notwithstanding the lower oil prices and regional instability. While the UAE continues its efforts to grow its nonoil economy and works toward hosting the World Expo in 2020, regional demographics will continue to have the biggest impact on growth and deal activity, particularly in respect of social infrastructure transactions," added Will Seivewright.

The forecasts show completed global M&A transactions rising to $2.7 trillion in 2015 before accelerating to $3 trillion in 2016 and $3.4 trillion in 2017.

The value of cross-border transactions will rise by 17 percent in 2015 to $1.03 trillion. This will represent 38 percent of total deal activity in 2015, although this share is projected to subsequently drop back slightly in 2016.

M&A activity relating to emerging markets will grow dramatically, rising by 56 percent to $678 billion by 2018, up from $435 billion in 2014.

The outlook for Global IPO transactions follows a similar pattern to M&A transactions, reflecting their shared fundamental drivers but with some key differences. Regulatory changes, particularly pension reforms that encourage funds to diversify out of bonds into equities, should continue to encourage firms to raise capital on equity markets. Emerging economies are also likely to encourage pension growth, broadening and deepening domestic institutional investment bases.

The forecast suggests that overall IPO activity will peak in 2017 with a split of $233 billion and $89.7 billion between domestic and cross-border activity.

The forecast also predicts a continued rise of emerging markets-based companies pursuing cross-border listings as they seek to raise capital in deeper, better capitalized markets in the US and UK.

The most active sectors over the next five years are expected to be health care, telecommunications and financials for structural reasons. Consumer goods & services, technology and pharmaceuticals will also experience growth, primarily due to cyclical trends.

© Arab News 2015