24/11/2014 15:02 AST
According to EY’s MENA Q3 2014 M&A Update, deal activity increased by 17 per cent in Q3 2014, where 109 deals were announced compared with 93 deals in Q3 2013. Announced deal value in MENA decreased by 47 per cent from $17.5 billion in Q3 2013 to $9.3 billion in Q3 2014, indicating a preference for smaller strategic deals.
EY’s latest MENA Capital Confidence Barometer (CCB) highlighted that the increased deal volume is expected to continue as more than half of the MENA respondents expect their company to pursue an acquisition over the next 12 months.
Phil Gandier, MENA Head of Transaction Advisory Services, EY said, “MENA executives continue to be upbeat about local market conditions. Outlook for corporate earnings is strong, with 81 per cent of CCB respondents confident about better financial performance for local businesses. The biggest jump was seen in the outlook for credit availability, which rose from 53 per cent to 70 per cent over the last six months. Regional banks are expected to report higher earnings supported by lower provisions and strong loan growth. Rapid expansion is anticipated next year, in line with healthy economic activity driven by robust government spending and non-oil private sector growth.”
Domestic and outbound deal value falls in Q3 2014
Domestic and outbound deal value decreased by 70 per cent and 59 per cent respectively, while inbound deal value rose by 16 per cent in Q3 2014 compared to the same quarter last year. However, domestic deal activity saw an increase of 59 per cent, while inbound and outbound deal activity dropped compared to Q3 2013.
“Contrary to global trends, bolt-on acquisitions may not make up the larger portion of revenue growth in the MENA region. Although this year has seen an increase in confidence and deal-making, executives are more cautious in their approach. The decrease in both domestic and outbound deal values in Q3 2014 indicates that MENA executives are prioritizing organic growth, even as bolt-on acquisitions remain in their plans. Businesses are not planning acquisitions at the expense of organic growth, but they expect to do deals that are aligned to their strategy,” said Gandier.
High activity in consumption-led sectors
Consumer products, asset management and real estate were the leading sectors in terms of domestic deals in Q3 2014. International investors looked to the oil and gas, diversified industrial products and consumer products sectors for investment opportunities within MENA. For outbound deals, oil and gas, diversified industrial products, real estate and provider care sectors dominated Q3 deal activity.
“Deal activity has increased in consumption-led sectors such as real estate and construction, consumer products and diversified industrials. Looking ahead, mid-market deals in consumption led sectors will continue to dominate the M&A landscape in the GCC in the future,” said Anil Menon, MENA M&A Leader, EY.
Investment into new markets
According to the survey, 85 per cent of MENA businesses will focus on expanding their core offering into new markets and are also increasingly confident about addressing the challenges to deal-making since last year.
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