Mergers, acquisitions may top $25b as sector revives

Dubai: Mergers and acquisition (M&A) activity in the Gulf is expected to surpass $25 billion (Dh92 billion) this year, according to a survey involving 27 leading regional investment bankers.

"More than 80 per cent of the investment banks in the region are positive that the M&A volumes are going to pick up this year and some of the respondents said the regional M&A volumes could surpass $100 billion mark in 2011," the Zawya.com survey conducted in association with M.Communications, said.

Although worldwide M&A levels are still below those of the debt boom years, 2010's first quarter saw some significant deals, such as Century Tel and Qwest's $22.3 billion all-share merger, Kraft's $18.9 billion acquisition of Cadbury, the UK's Prudential offering $35.5 billion for AIG's Asian unit and Merck's $7.2 billion bid for US bioscience company Millipore.

In the Gulf, there has been the $10.7 billion deal between India's Bharti Airtel and Kuwait's Zain for the latter's Africa services.

Total deal size

Excluding the Bharti-Zain deal, the Gulf M&A deals in 2010's first quarter reached $3.58 billion, ahead of the total deal size of $3.52 billion in 2009.

In 2007, Gulf M&A activity peaked at $130 billion. The survey estimates the 2010 figure at $65 billion.

"The M&A sector now has an air of cautious optimism as key corporates' first quarter earnings show a return to double digit growth and chief executives are now seeking growth through acquisition strategies," Jean Marc Paufique, Head of Professional Investment Division of Zawya, said.

Despite the optimism in the survey results dropped by 67 per cent in value to $34 billion last year, down from $102 billion a year earlier, according to a recent report from Ernst & Young. The number of announced deals dropped from 465 in 2008 to 353 in 2009.

The majority of the participating bankers said that market extension will be the main strategy for GCC M&A this year.

More than 45 per cent of respondents expect GCC M&A activity to be financed through a combination of debt and equity, in both in 2010 and 2011.

Among the remainder, they see equity finance as the trend for 2010.