Sunday, Nov 22, 2015

Dubai: Combined outbound and inbound deal activity in the Middle East and North Africa (Mena) region showed an increase of 40 per cent from 45 deals in the third quarter of 2014 to 63 in the same quarter 2015, according EY’s third quarter Mena M&A Update.

While announced domestic deal activity decreased from 59 deals in the third quarter 2014 to only 28 deals 2015, EY’s latest bi-annual Mena Capital Confidence Barometer (CCB) shows improving confidence in the regional and global economic outlook, despite the continued pressure on oil price through 2015.

“Optimism about economic prospects in Mena appears to have firmed since April 2015. The CCB survey finds that 18 per cent of Mena respondents believe that the regional economy is on a strong recovery path, up from the 6 per cent who believed so in April 2015,” said Phil Gandier, Mena Transaction Advisory Services Leader, EY.

“There is an underlying sense that executives believe that the hydrocarbon-dependent economies have been able to weather the storm. Governments appear to be committed to key projects, and most have sufficient reserves to run deficits for a few years yet,” he said.

Latest data from Thomson Reuters on investment banking fees in the region shows M&A totalled $177.6 million (Dh651.8 million, accounting for 37 per cent of the overall Middle Eastern investment banking fee pool, the highest first nine month share since records began in 1980. While economic uncertainties linked to persistent decline in oil prices and seasonal factors have impacted deal flows CCB data shows confidence is rebounding.

Compelling evidence

“It is clear that the recent macroeconomic uncertainties and the extended summer and other holidays in the region have had an effect on domestic deal activity in the third quarter of 2015. However, there is compelling evidence that the Mena deal pipeline remains robust; 71 per cent of Mena respondents expected their deal pipeline to increase in the coming year, compared to 56 per cent in April 2015,” said Anil Menon, Mena M&A and IPO leader, EY.

The survey data showed that the most marked improvement was in the UAE, where 70 per cent of respondents saw the deal pipeline improving, compared to 14 per cent in April 2015.

The main sectors for cross-border deals were chemicals, consumer products and health care. The largest M&A transaction in the third quarter of 2015 was in September, where Saudi Arabian Oil Company acquired a 50 per cent stake in Lanxess AG, a synthetic rubber company in Germany, at a value of $1.7 billion.

“The CCB survey is a great indicator of sector dynamics. Allocation of capital in the oil and gas sector has clearly moved from upstream to downstream. We expect to see many more petrochemical deals in 2015,” said Menon.

Inorganic growth

Egypt has emerged as an attractive destination for foreign investors over the past year. US food giant Kellogg Company acquired two Egyptian companies in 2015, the biscuit maker BiscoMisr for approximately $150 million in January, followed in September by the $50 million acquisition of Egypt’s leading cereal producer, Mass Food Group. These acquisitions underline a greater readiness among foreign companies to conceive of inorganic growth as the best approach in getting a foothold in an important growth market with favourable demographics.

“Egypt, as a net oil importer, has clearly benefited from the weaker oil prices with a robust 4.2 per cent GDP growth rate in the year to June 2015. That has fed into a sizeable increase in the numbers of Egypt-based respondents who see the local economy as modestly improving, rising from 27 per cent six months ago to 47 per cent in October 2015, according to the CCB survey,” said Gandier.

By Babu Das Augustine Banking Editor

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