Dubai — Middle East firms’ plans to increase debt-to-capital have more than doubled, whereby 58 per cent of Middle East and North Africa businesses expect to avail more debt-to-fund growth compared with 23 per cent six months ago, according to the latest EY [Ernst & Young] Capital Confidence Survey (CCB).
The CCB is a regular survey of senior executives from large companies around the world that gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their capital agendas.
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.
“Executive optimism remains high due to the expectation of strong corporate earnings, easy credit availability and market stability. In addition, the strength of deal pipelines and rising capital market activity continues to provide a positive outlook for liquidity in the markets,” said Phil Gandier, MENA Head of Transaction Advisory Services, EY.
For the Mena region as whole, M&A deal activity increased by 17 per cent in the third quarter of 2014, where 109 deals were announced compared with 93 deals in the third quarter of 2013. However announced deal value in Mena decreased by 47 per cent from $17.5 billion (Dh64.3 billion) in the third quarter of 2013 to $9.3 billion in Q3 2014, indicating a preference for smaller strategic deals.
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.
“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,” said Gandier.
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.
Expectations of changes in deal pipeline are highly positive, with 79 per cent of MENA respondents expecting it to grow, up from 39 per cent in April 2014. This reflects a strong optimism in the deal market. The top three drivers impacting M&A strategy over the next 12 months in the MENA region include moving into new geographical markets, reducing costs and improving margins, and access to new technology and intellectual property.
“MENA businesses are looking to achieve growth within core businesses and are beginning to look at a range of transaction drivers, but businesses continue to take less risky options when acquiring assets,” said Anil Menon, MENA M&A Leader at EY.
The CCB showed that capital allocation to M&A remains measured and disciplined, with less than 25 per cent of respondents planning major acquisitions in the current fiscal year. Businesses are not planning acquisitions at the expense of organic growth, but they expect to do deals that are aligned to their strategy. The survey showed 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.
