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M&As: An optimistic outlook for MENA

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On the back of encouraging deal values as well as positive sentiments on the global and regional economy, corporates appear to be hungry for more strategic investments.
THURSDAY 01, AUGUST 2019

The first half (H1) of 2019 witnessed a total of 216 announced M&A deals. Valued at $115.5 billion, this was 220.8 per cent increase from $36.0 billion in H1 of 2018. A report by EY found that in spite of the value increase, deal volumes declined 10.7 per cent— 242 deals were recorded in H1 of 2018.

The spike in deal value is attributed Saudi Aramco’s massive acquisition of a 70 per cent stake in SABIC worth $69.1 billion. EY estimates suggest that stateowned entities including Aramco, Abu Dhabi National Oil Company (ADNOC) and Abu Dhabi Investment Authority (ADIA), were involved in a total of 55 deals (25 per cent of total deals) amounting to $104.5 billion, equivalent to 90 per cent of the total deal value in H1 of 2019.

M&A Activity

The MENA region witnessed an increase in deal value to $79.3 billion across 111 deals in the first half of this year, compared to 96 deals worth $5.5 billion in the corresponding period last year, reported EY.

The numbers were driven by two mega deals on the back of consolidation in Saudi Arabia’s chemicals sector—a transaction worth $69.1 billion—and a deal in UAE’s financial sector—a transaction worth $4 billion. The main highlight of the year thus far was Uber’s acquisition of Careem Networks for $3.1 billion, the region’s largest technology sector transaction to date.

The chemicals sector had the highest deal value at $69.3 billion for the landmark Saudi Aramco-SABIC deal, followed by the oil and gas sector recording $14.2 billion. The provider care sector recorded $10.3 billion, while the banking and capital markets sector recorded $5.1 billion in deal value, followed by the technology sector striking a deal value of $4.3 billion.

In terms of outbound M&A, although a slight dip in volume, MENA recorded 65 deals worth $21 billion compared to 77 deals worth $18.2 billion in H1 2018. This was driven by strategic investments from sovereign wealth funds and stateowned enterprises, including mega deals involving Abu Dhabi Investment Authority and Saudi Aramco.

As for inbound investments, 40 deals worth $15.1 billion were made in H1 2019 compared to 69 deals recorded at a value of $12.3 billion in the corresponding period last year. According to EY, the UAE ranked the highest in terms of inbound M&A investment in the region, with 20 deals amounting to $14.4 billion.

 While the bulk of the inbound investment was received by the oil and gas sector, at $10.8 billion, four out of the six deals in the sector were in the UAE, including three mega deals, involving the ADNOC stake sale in its oil refining and pipeline business.

Outlook

Commenting on this progress, Anil Menon, MENA M&A and Equity Capital Markets Leader at EY, highlighted that market players across the region are relatively more optimistic about the improving economic prospects whilst keeping an eye on evolving geopolitical risks.

MENA executives are found to be proactively pursuing strategic options to strengthen competitive advantage and accelerate growth in an era where technology continues to disrupt traditional business models. On the back of strong inward investment, EY believes that it is indeed an opportune time for strategic acquisitions in the region.

Based on their findings in the EY Capital Confidence Baromete report, Matthew Benson, MENA Transaction Advisory Services Leader at EY, stated that MENA corporates are currently looking for innovative ways to raise capital and have stepped up the frequency of their portfolio reviews.

Companies are found to be reviewing their portfolios every quarter and more frequently than global organisations. With more frequent portfolio reviews, several non-core businesses are set aside for divestment thereby fuelling deal activity.

With improving sentiments on the global economy, MENA executives believe that the same will be reflected in the domestic economies in the region. Companies are expected to continue to reshape their portfolios to remain resilient to potential headwinds on the horizon, even as they actively pursue their ambitious growth objectives.

TAGS: M&A ADNOC SAUDI ARAMCO SABIC ADIA
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