Dubai The Middle East is set for a revival in mergers and acquisitions (M&As) this year following a long lull, according to a recent survey of business leaders by DLA Piper, a global law firm.
The study based on data from 90 online interviews with DLA Piper's regional database showed the Gulf will witness a strong revival in M&As largely driven by improved liquidity, a pick-up in bank lending and the growing financial requirements for regional firms to expand.
"The financial crisis is more or less behind us," said Abdul Aziz Al Yaqout, regional managing partner at DLA Piper.
Driving activity
"Although the liquidity situation has improved and the banks have begun lending, lots of regional firms are looking to expand through acquisitions while some others are getting ready to shed assets to raise finance.
"So the increased availability of liquidity and the growing demand for liquidity will drive the regional M&A activity."
Nearly three quarters (71 per cent) of respondents said they expect the maximum number of deals to happen in the UAE, followed by Saudi Arabia and then Qatar.
"The overall macro-economic environment in the region is supportive of a revival in M&A," said Al Yaqout.
"The huge government stimulus to the economy is seen trickling down to boost demand and business activity across the Gulf region, particularly in Saudi Arabia, Qatar and the UAE."
The sector most business leaders believe will offer the greatest M&A opportunities in 2012 is financial services and insurance (47 per cent), closely followed by the real estate and construction (46 per cent). Hospitality, leisure and tourism was also a popular response with 41 per cent.
Most potential benefit
The increased availability of bank lending is the financing source that will have the most potential benefit to the Middle East according to 56 per cent of respondents, while 42 per cent said the increased availability of private equity would help.
Of the barriers to M&A activity, the most common in the region is regarded as political instability (59 per cent), with the Eurozone crisis and the regulatory and legal systems also considered potential obstacles (44 per cent each).
Despite political turmoil still affecting some of the key Middle East and North African countries, the respondents said there were good opportunities out there and private equity deals were already picking up.
In the survey, Egypt and Libya figured as leading M&A destinations even after experiencing a difficult 2011.
"No one is saying 2012 is going to be an easy year, there are clearly still some obstacles we need to overcome as a region, but business leaders are saying the opportunities are there — and not just in the GCC," said Al Yaqout.
The total number of M&As in the Mena region rose just 4 per cent last year, from 401 in 2010 to 416 in 2011, according to Ernst and Young's statistics.
The total deal values fell 28 per cent from $44.1 billion (Dh162 billion) in 2010 to $31.7 billion in 2011.
Al Yaqout said the valuation gap between buyers and potential sellers continues to limit the number of transactions in the region.
Going forward, with the revival in the regional equity markets and boost to asset prices, he expects this gap to shrink and boost the regional deal flow.
