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· Q1 domestic deal volume rises by 43%, four out of five top deal destinations are within MENA
· Low oil prices have little correlation to MENA M&A activity
Dubai - According to the latest edition of the EY Capital Confidence Barometer (CCB), low oil price is having little impact on M&A strategy as MENA executives continue their steadfast pursuit of deal-making. Of the MENA executives surveyed, 37% expect to actively pursue acquisitions in the next 12 months.
Geographically, MENA companies are sticking close to home, with four out of five of their top deal destinations residing within the region, according to the CCB. Q1 2016 saw a 43% increase in domestic deal volume, rising from 21 deals in Q1 2015 to 30 deals in Q1 2016.
Deal-making in MENA influenced by depressed asset sales
In MENA, distressed asset sales are playing a more prominent role in deal-making, largely because of a tightening of capital. Within many countries, governments are being given priority access to available capital, leaving less capital available to private enterprises, and particularly family-owned businesses.
Phil Gandier, MENA Transaction Advisory Services Leader, says:
"SMEs in MENA are being forced to take a hard look at their portfolios and shed any non-core assets in an effort to either shore up their balance sheets to weather any economic uncertainties or release cash to fund potential M&A activity. We are starting to see more portfolio review/optimization initiatives than we ever seen in the MENA region and this will drive M&A activity."
Price dislocation
Disparities in vendors' price expectation versus buyers' valuation have created a price dislocation with the equilibrium price moving closer to buyer valuations.
"Price dislocations stem largely from inconsistent and disparate views on macro and sector outlooks. In many instances, forward projections related to valuations are being subjected to increasingly growing buyer-scrutiny whereby buyers are looking to ensure that commercial realities and market sentiment are being factored in to company projections. As a result, sellers are becoming increasingly pressed to price some of the macro risks into deal pricing," says Anil Menon, MENA M&A and IPO Leader, EY.
Transformational deals and disruptive trends dominate M&A activity
Disruptive trends, such as changes in consumer behavior, have more than one third of MENA companies looking for middle market deals that can transform their businesses to compete in a changing consumer landscape.
In addition to pursuing transformative deals that enable MENA companies to adapt to shifting customer sentiment, MENA executives are focusing on organic strategies to attract and retain customers to drive growth. Consumers are becoming more prudent about their spending. In response, businesses are doing everything they can to focus on the customer experience in an effort to dissuade them from looking at lower-value options.
Watchful waiting over the next 12 months
"Going forward, we expect reservedly confident MENA executives to take a position of watchful waiting as they look for the US economy to pick up, seek more certainty in China's economy, and await the outcome of the Brexit debate. Given that many of the regional CEO's report to boards in the US or Europe, these global factors will, at least in part, guide investment decisions in the months to come. However, family businesses in the region are likely to continue with their quest for strategic assets that meet their investment criteria. As such, we expect to see MENA's US$50b to US$60b annual M&A market to continue unabated," concludes Phil.
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About the CCB
The Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas -- EY's framework for strategically managing capital.
It is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises selected global EY clients and contacts and regular EIU contributors.
In February and March, we surveyed a panel of more than 1,700 executives in 45 countries; nearly 50% were CEOs, CFOs and other C-level executives.
Respondents represented 18 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate.
Surveyed companies' annual global revenues were as follows: less than US$500m (16%); US$500m--US$999.9m (25%); US$1b--US$2.9b (21%); US$3b-- US$4.9b (12%); and greater than US$5b (26%).
Global company ownership was as follows: publicly listed (65%), privately owned (31%), family-owned (2%) and government/ state owned (2%).
About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
The MENA practice of EY has been operating in the region since 1923. For over 90 years, we have grown to over 6,000 people united across 20 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region.
© 2016 EYGM Limited.
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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© Press Release 2016
