Under the spotlight: Egypt’s prominent M&A deals

In first quarter only, Egypt marked the top regional target market for inbound M&A at $2.4bln

  
A trader works at the Egyptian stock market in Cairo .

A trader works at the Egyptian stock market in Cairo .

REUTERS/Mohamed Abd El Ghany
The Middle East saw a Year on Year decline in its merger and acquisition (M&A) deals’ value and volume by 58% and 26%, respectively, during the first half (H1) of 2020, according to an August report by global law firm Baker McKenzie.

Globally, the market performance was dragged down by the volatility across markets around the world due to the global COVID-19 pandemic, the report added. Egypt was no exception, yet the country saw less of an impact compared to its peers.

During the first quarter only, Egypt marked the top regional target market for inbound M&A at $2.4 billion.

“Numerous transactions have either put on hold, aborted or slowed-down […] However, strategic mergers and acquisitions are less impacted as the rationale for such transactions is usually driven by financial as well as non-financial factors,” according to an April article by Chambers and Partners, a UK-based publisher of leading rankings.

Steady performance

Experts have been seeing significant M&A activity in Egypt in the past two years. After the local currency flotation in 2016, Mergermarket, a global provider of M&A data and intelligence, noted that investors adopted a "wait and see" approach to assessing the post-flotation economic situation.

However, the provider noted that this has changed since 2018, driven by currency stability and economic reforms, and has resulted in confidence by investors and more M&A activities.

Egypt’s M&A deal value accounted for 75.1% of the North African value and 58.3% of its volume during the period from January to November 2019, up from 48.4% and 39.5%, respectively, recorded in the prior-year period, Mergermarket, the leading provider of M&A data and intelligence, announced in November.

In the same period, the market was seen robust, with 14 deals worth $1.3 billion compared to 15 deals worth $1.9 billion in the same months of 2018, despite an 11.4% drop in the global deal-making in Q3 2019.

Commenting on the 2019 divs, Hussein Choucri, founder, chairman, and managing Director, HC Securities and Investment commented: “Egypt is seeing more M&A activities from foreign investors compared to previous years. The overall positive macroeconomic outlook, successful fiscal and monetary policies, and a bullish business environment have made Egypt a high-rank investment destination.”

Not only that but also Egypt’s domestic share of M&A deals in the MENA region is seen to be rising in the first half (H1) of 2020, reflecting an active market despite the pandemic repercussions.

Egypt was the third-largest target nation for domestic M&A in MENA in H1 2020 in terms of value, Enterprise cited Refinitiv’s latest MENA Investment Banking Review in July.

The country’s share of regional transactions rose to 8% from 1% during the same period in 2019, it added.

On top of that, the North African country ranked the second most popular target country for outbound cross-regional M&A by volume and value with 10 deals valued at $2.640 billion in the first half of 2020, according to an August note by Baker Makenzie.

In the same category, the US ranked first, while the UK came in third place, the note highlighted.

Biggest deals

While there are many M&A deals in Egypt, some deals appeared to be making up the largest share of the market.

During the January-November period of 2019, two inbound M&A deals made up the bulk of Egypt’s deal value, Mergermarket noted in 2019. The first was the acquisition of a stake in the Gulf of Suez Petroleum Company by Dragon Oil for $600 million.

The deal will enable the company to expand its presence in the Egyptian market, enhancing its global position and investments globally.

The second deal was the full acquisition of Cairo-based Global Telecom Holdings’ outstanding shares by Netherlands-based telecoms services company, VEON, for EUR 578 million.

In H1, the telecommunications industry regionally led by value, featuring announced megadeals such as the potential Vodafone Egypt-Saudi Telecom Company deal worth $2.392 billion, according to Baker Mckenzie.

However, the latest official updates released in September showed that stc did not reach an agreement to acquire the 55% equity in Vodafone Egypt.

Afterward, the local press reported that Telecom Egypt is considering forming a coalition with local and foreign banks to acquire the stake.

Outlook

The M&A activity, in the region in general and Egypt in specific, is likely not to be deeply affected by the pandemic crisis in.

Regionally, “COVID-19 has had a significant impact on M&As,” Omar Momany, partner and head of the Corporate M&A Practice Group at Baker McKenzie Habib Al Mulla said in August.

However, he argued that the dramatic increase in the value of deals made during the final two months of the year showcases “a positive outlook and an early recovery sign” for M&A activity for the remainder of the year.

He elaborated, “As the world begins to emerge from COVID-19, we can expect markets to begin to bounce back leading to more opportunities for investment, distressed M&As, and consolidation within the region.”

Moving to Egypt, only one-fifth of MENA executives anticipate a severe impact locally, while one-third expect it to have no impact at all, according to a June article by Ernst & Young multinational professional services network.

Almost 49% of MENA executives surveyed by the organization expect to be active in the country’s M&A market.

Baker McKenzie expects in its “Global Transactions Forecast 2020” note that M&A will pick up to $1.5 billion in 2020 and $2.7 billion in 2021 as foreign investors become more confident in the economy’s medium-term prospects.

According to a March article titled “Egyptian M&A 2020 outlook,” by the Oil and Gas Middle East news portal, many experts believe that M&A activity in the energy sector is set to continue growing at a good pace.

The forecast is attributed to a combination of reasons, including the continuing economic growth, legal reforms aimed to attract foreign investment, the discovery of vast offshore gas reserves, and a growing number of aging oil and gas assets, the article highlighted.

There are no signs of a slowdown soon with Shell recently announcing its intention to sell its onshore portfolio in the Western Desert worth $775 million, BP indicating that it is planning to invest US$3 billion in Egypt in the near future. This is in addition to Chevron', Shell', and Mubadala's success in the Red Sea bid round.

"While the divs remain modest, the trend in M&A in Egypt is encouraging compared to overall global trends in M&A activity," Heba Abdelrahman, Editor at Dealreporter, said in a 2019 note.

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