Middle East M&A activity slows down as caution prevails: PwC

MENA-based investors continue to dominate activity throughout the region

  
Traders monitor stocks at the Dubai Stock Exchange in the Dubai World Trade Center.

Traders monitor stocks at the Dubai Stock Exchange in the Dubai World Trade Center.

REUTERS/Ahmed Jadallah

Mergers and acquisitions in the Middle East continue to remain slow in the current year, with 44 deals reported in Q1 2019 versus 56 deals over the same period last year.

Additionally, only one IPO was reported in Q1 2019, down from four last year. Private equity activity also saw a decline, dropping from 26 percent to 21 percent of all deals in 2018.

However, PwC’s second TransAct Middle East edition, titled “What’s Shaping M&A in the Middle East?” reports that the market will continue to offer interesting deal opportunities, especially in technology and digital transformation.

Some of the recent landmark deals include Uber’s acquisition of Careem, Saudi Aramco’s $100 billion bonds sale, and Network International’s IPO on the London Stock Exchange.

According to the report, corporate acquirers increased their share of deals from 54 percent in 2017 to 60 percent in 2018, with energy, financial services and healthcare among the most active sectors.

MENA-based investors continue to dominate activity throughout the region, with domestic deals accounting for 80 percent of all transactions in Egypt, 57 percent in Saudi Arabia and 49 percent in the UAE, the three largest markets.

“These figures reflect the generally bearish sentiments of Middle East business leaders as shown in our latest global CEO survey, where only 28 percent of the region’s CEO’s said they were ‘very confident’ about their company’s revenue prospects over the next 12 months, compared with 35 percent among their global peers,” said Romil Radia, Deals Client & Markets Leader at PwC Middle East. 

The report reveals a varied landscape across markets and sectors but with several prominent themes. Consolidation continues to be a major driver of M&A activity in 2019 across the MENA region, especially in the banking and financial sector, where the region has seen a series of national and cross-border mergers, and also in retail and consumer goods, where online and traditional retailers continue to seek efficiencies to build scale.

Private equity activity saw a decline from 26 percent to 21 percent in all deals in 2018. Abraaj’s liquidation has dampened the private equity sentiment in the region at least temporarily and has had ramifications for regional players looking to raise new funds.

In addition, exit opportunities continue to remain challenging given the muted activity in capital markets and limited demand for secondary sales (with a few notable exceptions, including the sale of The Entertainer to GFH and Middlesex University to Amanat Holdings by the Abraaj Group). This has driven the need for value creation, as private equity investors have focused on deals offering a secure exit strategy on a three-to-five-year horizon.

Despite the decline in the number of inbound deals from 74 in 2017 to 53 in 2018, international interest in the region continues to remain strong. Governments have continued to make increased diplomatic efforts to attract international inflows and acquire interest in international strategic assets.

“We are positive that inbound interest in the region will continue, as evidenced by some iconic deals that have marked the start of 2019 and ongoing interest in the energy/infrastructure sector,” Radia said. “We expect to see a positive outlook in M&A activity for some sectors over the next 12 to 18 months.”

Another trend to look forward to is tech-driven activity. A number of deals were completed in the sector in 2018, and this is expected to continue as businesses will look to acquisitions to expand their digital footprint in the region and protect their existing services and market share from startups or new entrants.

Ovais Chhotani, Transaction Services Partner at PwC Middle East, said, “We are clearly seeing corporates/family businesses looking at acquisitions more actively, and this is understandable as organic growth slows down across a number of sectors.”

He continued: “We are seeing consolidation in the financial services sector, and I won’t be surprised to see consolidation gathering momentum across certain other sectors. Interestingly, Egypt is back on the radar and offers some interesting opportunities for investors, particularly in the consumer-facing sectors.”

(Writing by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@refinitiv.com)

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© ZAWYA 2019

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