Consolidation among government-related companies will drive merger and acquisition (M&A) activity in the United Arab Emirates and its Gulf neighbours this year, Egyptian investment bank EFG Hermes predicts.

Speaking at a briefing with journalists at EFG Hermes' One on One conference in Dubai on Sunday, Mohamed Fahmi, the company’s co-head of investment banking, said: “I think, generally speaking, consolidation is the name of the next phase - not only in the UAE but GCC-wide.

“Governments are realising to a great extent that there are inefficiencies. You do not need all of these relatively small organisations.”

In January, Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank - all of which were at least part-owned by the Abu Dhabi government - announced a three-way merger to create the UAE's third-biggest bank. That follows the merger of National Bank of Abu Dhabi and First Gulf Bank two years ago to create First Abu Dhabi, the UAE’s biggest lender.

Other bank mergers are also in discussion among Kuwaiti, Bahraini, Qatari and Omani lenders, while the Gulf’s biggest M&A deal of 2018 was the $5 billion merger between Saudi British Bank (SABB) and Alawwal Bank, according to data from Refinitiv, the parent company of Zawya.

Fahmi described bank mergers as “low-hanging fruit”.

“But I think we will see more consolidation across sectors,” he said.

“In the UAE, more than ECM (equity capital markets), we will see more M&A driven by consolidation, driven by strategic players looking (at) ... not only consolidation in the sense of creating national champions ... but in the sense of market participants seeing an opportunity to take out a competitor.”

Fahmi said there was also interest from “global, institutional funds” in acquiring regional assets, especially from funds who have regional investors.

“I think that pressure is helping. But there is international appetite, size permitting,” he said.

Fahmi said investors remain interested in oil and gas assets, pointing to last week's announcement by Abu Dhabi National Oil Company of a $4 billion investment in its pipeline infrastructure by investment firms Blackrock and KKR.

“I don't think you will get a better customer than that on the infrastructure side,” he said. “Industrials are becoming more interesting as well.”

Mohamed Obeid, chief executive of EFG Hermes's investment banking division, also told Zawya his firm was “working on a few IPOs (initial public offerings)” in Saudi Arabia.

"There is interest - not just from the investment banks pushing at those but from the investors themselves,” he argued.

A report published last month by accountancy firm EY said that the value of IPOs completed in the MENA region dropped by 24.6 percent in 2018 to $2,946.2 million, while the number of IPOs also declined by 23.5 percent, to 26.

(Reporting by Michael Fahy; Editing by Matt Smith)


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