Despite the stiff economic and political challenges witnessed over the past four years, mergers and acquisitions (M&A) activity across the Middle East and North Africa (MENA) remained buoyant in 2012.
Total regional M&A deals last year reached 373, posting an increase of 8.43% from the 344 transactions in 2011. The latest figure was also in line with the sustained increase in activity seen since the start of the financial crisis in 2008. The value of M&A deals in 2012, at USD 37.22 billion, also represented a significant improvement of 18.87% compared with 2011. 
Source: MENA M&A Quarterly Bulletin - 4Q12
Leading MENA Markets
Although international investors remained mostly on the sidelines during the year, interest from regional players kept M&A deals active. The aggregate number of transactions involving MENA companies stood at 303 deals worth USD 26.77 billion, compared to 277 at USD 15.64 billion in 2011.
Egypt proved the most attractive MENA market in 2012, both in terms of volume and value, as it sealed 65 transactions worth USD 7.47 billion. UAE was in second place in terms of volume with 44 deals at USD 4.76 billion, followed by Saudi Arabia and Kuwait.
Qatar rounded out the top five in terms of value, with its M&A market largely driven by the General Retirement and Social Insurance Authority's (Qatar) acquisition of a 19% stake in Industries Qatar, which netted USD 3.91 billion.
Source: Zawya's M&A Monitor
Performance by Sector
In 2012, the most sought after sectors in terms of volume were financial services with 73 deals (24% of the overall MENA M&A targeted activity), followed by industrial manufacturing and food and beverage with 36 and 26 transactions, respectively.
In terms of value, the financial services sector topped the table with USD 8.50 billion (23% of the overall MENA M&A targeted activity), followed by telecommunications with USD 6.87 billion (26%) and oil and gas with USD 3.96 billion (15%).
Increased activity in the MENA telecommunications sector was attributed to a number of factors such as telecom companies' strong capital bases and high liquidity levels, which allowed them to expand their regional footprint and diversify their revenue streams. A highly competitive industry also prompted telecom companies to widen their market shares. For example, Qatar Telecom (Qtel) currently generates 80% of its revenue outside of its home market.
Qtel's acquisition of an additional 39.61% stake worth USD 1.84 billion in Kuwait-based National Mobile Telecommunications Company (Wataniya) stood as the highlight of M&A activity in the regional telecommunications sector. The Qtel-Wataniya deal had a price-to-book (P/B) ratio of 1.49 and a deal value to book value (DV/BV) of 1.64, a premium price compared to the average market rate.
In the financial services sector, the biggest deal was Qatar National Bank's (QNB) takeover of National Societe Generale Bank (NSGB) in Egypt, a transaction valued at USD 2.55 billion. The deal had a P/B ratio of 2.21 and a DV/BV of 1.99, reflecting a discount on market price.
The General Retirement and Social Insurance Authority's (Qatar) purchase of a 19% stake in Industries Qatar for USD 3.91 billion was the highest valued transaction in the oil and gas sector, while Savola Group Company's acquisition of an additional 6.57% in Almarai Company (priced at USD 525.5 million) topped the list of M&A deals in the food and beverage sector.
In the transport segment, one deal alone accounted for a massive 77% of total sector deal value. The National Shipping Company of Saudi Arabia's acquisition of Vela International Marine Limited netted USD 1.30 billion out of a sector aggregate of USD 1.68 billion.
Source: Zawya's M&A Monitor
Source: Zawya's M&A Monitor
Year-on-year Review
The GCC closed 147 transactions in 2012, a decline of 20.11% compared to 2011. While the volume of GCC targeted M&A in 2012 dwindled, the value of these transactions was upbeat by 56.72% at USD 16.38 billion compared with USD 10.45 billion the year before. In North Africa, M&A activity surged in both in volume and value as against 2011 figures with 102 deals worth USD 8.48 billion. This reflected an increase of more than 88% from the 54 transactions worth USD 3.48 billion closed in 2011. Levant finalized 50 transactions in 2012 compared to 35 in 2011, but values dropped from USD 678 million in 2012 compared to USD 976 million in 2011. Iraq witnessed three deals in 2012 worth USD 1.22 billion compared to four deals in 2011 worth USD 731 million.
Source: Zawya's M&A Monitor
MENA vs. Cross-border Market
Out of the 373 M&A deals finalized in 2012, 255 were domestic transactions worth USD 21.38 billion, 48 were inbound deals at USD 5.38 billion and 70 were outbound deals valued at USD 10.45 billion. Gulf countries Qatar, UAE and Bahrain led M&A activity in the outbound cross-border segment in terms of volume.
Qatar closed 25 overseas transactions while UAE and Bahrain witnessed 24 and 7 deals, respectively. UAE poured out a total of USD 5.75 billion in international markets while investments made by Qatar were at USD 2.43 billion and Bahrain at USD 1.15 billion.
In terms of volume, the top targeted overseas countries by MENA investors were United Kingdom with ten deals while the United States and Turkey witnessed six and five transactions, respectively. The U.S. also led the list of most targeted countries, in terms of value, with acquired businesses worth USD 2.56 billion, followed by Brazil with USD 2 billion and Italy with USD 1.54 billion.
Going forward, the primary overseas targeted sectors by MENA investors were financial services with 16 transactions, transport with 11 and mining and metals with eight deals. In value, outbound investments in the financial services sector reached USD 3.18 billion, media was at USD 2.45 billion and transport at USD 1.91 billion.
Source: Zawya's M&A Monitor
2013 - The Year of Possibilities?
The M&A industry appears to be holding ground in 2013 on the back of increased demand from regional investors in 2012. Year to date, the market has witnessed 31 deals for a total value of USD 3.05 billion, with MENA players showing high interest in acquiring international assets.
Bahrain's Investcorp, for example, purchased US firm FishNet Security for slightly more than USD 200 million. The Commercial Bank of Qatar has announced that it started negotiations with Anadolu Endüstri Holding to acquire a 75% equity stake in Turkish lender Alternatifbank for an undisclosed amount. Another Gulf-based company, Al Jazeera, acquired Current TV (USA) for approximately USD 500 million.
Regional M&A players in the Financial Services sector have also benefitted from international banks' decision to leave the MENA investment market. Two prominent deals in Egypt are currently in the pipeline led by Qatar National Bank's acquisition of a 77.17% stake in NSGB, an affiliate of the French lender Societe Generale for USD 1.97 billion, while Emirates NBD plans to buy a 100% equity stake in BNP Paribas Le Caire from BNP Paribas for a total purchase consideration of USD 500 million. This trend might continue in 2013, resulting in an increased M&A activity with high valued transactions.
Despite the fact that acquirers are being more selective in their business expansion plans, low valuations in the region caused by the high level of volatility remain a major catalyst to M&A deals. Companies and governments will still show high investment appetite, with the hope of generating high returns. Also, depressed international interest in regional investments due to instability and political uncertainties means that regional investors will continue to dominate M&A markets.
Michel El Maalouly is Senior M&A Analyst for Zawya and can be reached at michel@zawya.com
© Zawya 2013
