Dubai – “ASWAQ”
The UAE was the most attractive destination for M&As in the region, leading as the top target country valued at US$17.1m with 14 deals in the third quarter, says EY’s Q3 2016 M&A report.
The emirate witnessed the largest deal in Q3 with the acquisition of Media.net Advertising Ltd by Investor Group from China for US$900m. The media and entertainment, real estate and airlines were the top three target sectors by deal value in Q3 2016.
According to EY’s Q3 2016 M&A report, Mena M&A activity and value declined in Q3 2016, recording 74 deals amounting to US$5 billion, as compared to 98 deals amounting to US$6b in Q3 2015. The GCC dominated deals in Q3, representing 92 per cent of total deal value and 77 per cent of total deal activity. Deal activity across all transaction types decreased in Q3; inbound deal activity decreased by 42 per cent, outbound deals decreased by 24 per cent and domestic deals decreased by 10 per cent, compared to Q3 2015.
Phil Gandier, Mena Transaction Advisory Services Leader, EY, said: “Mena companies’ interest in pursuing M&As is lower compared to October last year, and is currently below the long-term average level. The key driver behind this is lower CEO confidence, given the macro-uncertainties in the Mena region. Market fundamentals that are affecting M&A performance such as low interest rate and low growth rate are still prevalent.”
According to the latest EY Capital Confidence Barometer (CCB), interest from Mena executives is declining, with 21per cent expecting their company to pursue a merger or acquisition in the next year. Qatar and Egypt are particularly quiet on the M&A front, whereas the UAE is most optimistic, with 37 per cent looking to make a deal.
Mena executives cite uncertainty in the geopolitical scene and high volatility in currencies and commodities as the greatest economic risks to their M&A strategy, as well as the slowdown in global trade flows that all countries in the region are experiencing. While deal fundamentals remain relatively stable at local levels, with more respondents confident of the number of acquisitions, they are less optimistic overall about the quality of acquisition opportunities and the likelihood of closing, mainly due to macroeconomic issues.
Nevertheless, this has not prevented Mena companies from filling their pipelines in the hope of improvement, with 67per cent of Mena CCB respondents indicating that they have five or more deals in the pipeline against 49 per cent of global respondents. 40 per cent of Mena executives said their pipeline numbers are expected to increase in the next 12 months.
Anil Menon, Mena M&A and Equity Capital Markets Leader, said: “Deal activity in Mena in Q3 2016 was muted although conditions that support M&A remain robust. We expect significant deal activity in Q4 2016 with some large ongoing deals announcing completion.”
Despite 32 per cent of Mena executives suggesting that new products or service innovation is the key strategic driver for pursuing acquisitions outside of their own sector, the objectives of each country differ slightly. For example, in Saudi Arabia, half of the executives surveyed say that access to new materials or technology were their number one priority.
In Egypt however, every company is looking for deals that help to address changes in customer behavior. But for most countries, their second most important driver is acquiring talent to deal with the disruption that digitalization and new technologies would bring.