Five key sectors - retail, construction, logistics, energy and automotive - are facing stress in the Gulf region for multiple reasons, experts said at a conference on Saturday.
"Retail is suffering from high rents. Be it labour costs or e-commerce, there are many factors impacting retail and most firms are under stress. In logistics, shipping rates had been at historical levels and volumes are coming back. We see shipping lines going into liquidation around the world and expect this sector to remain under some level of stress for some time," said Vikas Papriwal, partner, head of advisory, KPMG Lower Gulf.
He said that what's going to happen in the UK with Brexit and the US-China trade war will also impact the logistics industry.
For the energy sector, Papriwal pointed out that a number of oil companies are under stress. "There is a sweet spot between $60 to $80 per barrel when a lot more activity happens in this sector. But the moment the price goes above $80 or below $60, the activity is reduced."
While addressing a seminar organised by the Institute of Chartered Accountants of India (ICA) - Dubai chapter on Saturday, Papriwal said the growth rate companies used to achieve has not been materialising in the last two to three years and this is causing restructuring.
He blamed oversupply and liquidity issues for distress in the construction industry, hence causing a lot of restructuring.
With regard to the automotive sector, he said the introduction of driverless cars is making people put off purchasing new cars because they feel their cars' resale value in five years will be drastically lower.
Earlier, Mahmood Bangara, chairman, ICAI - Dubai chapter, gave the welcome address. Among others, Leo Vera, director for corporate finance, PWC, and Zubin Chiba, partner for corporate finance, PWC, also addressed participants about executing M&As (mergers and acquisitions) in the Middle East; while Tarun Koduri, M&A director, EY corporate finance, gave insights to the audience about practical issues in business valuations.Hot M&A sectors
Commenting on the M&A market, Koduri said: "Today, the GCC is a buyer's market, so you find more sellers than buyers. The confidence is coming back compared to 2017 and 2018, but it will take time for activity to improve over the next 20 months or so."
He said that preferred sectors for M&As are healthcare, education and oil field services. These sectors are expected to see increased M&A volumes because their business models are more sustainable and businesses have seen faster growth. Plus, they are still cash-rich.
Bangara said the global value of M&A has grown to $4 trillion.
"The 21st century is an era where intangible assets and goodwill constitute major elements for valuation. Even tangible assets require a revisit of their value. All these make the techniques of valuation vital. So, the financial professional's involvement is becoming very significant," Bangara added.
Anish Mehta, vice-chairman, ICAI - Dubai chapter, said nowadays more focus is on value creation rather than valuation. "Value creation ensures better value for customers buying the goods or services as well as for shareholders in the business who want to see their stake appreciate in value," Mehta said.
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