The UAE market experienced much turbulence in 2020… and yet it was a year that witnessed several acquisitions and consolidation plays. On a macro level, the market has reached a recovery phase, with Abu Dhabi Securities Exchange recording a weekly growth of 6.54 per cent and Dubai Financial Markets by 1.23 per cent for the week ending January 21.
The holding company IHC, established in 1999, generated strong revenues in the third quarter, and had a market value of Dh71.05 billion. Its stock surged approximately 622 per cent last year and outperformed the ADX General Index by quite a distance.
Pick up a nice deal
In December, the firm announced secondary market listings for three subsidiaries: Palms Sports, Easy Lease and Zee Stores. This seems to be part of IHC’s strategy to unlock value from its assets.
This week, Zee Stores announced an acquisition in less than a month of going public. The retail subsidiary – which specialises in trading, importing, repackaging, wrapping, and distributing food and non-food products - has established itself among local consumers. It wishes to expand into international markets to be a major importer and re-exporter.
Synergies
The firm aims to generate further revenues and profits by developing logistics and warehousing facilities. The assets of Zee Stores were at Dh189 million as of September, and the annual turnover was reported as Dh300 million. The IHC subsidiary bought 60 per cent of a privately held food supplier Royal Horizon, for $21 million.
Royal Horizon has several food outlets in Ajman, Ras Al Khaimah and plans to have four more stores by 2025. The horizontal merger will have immense synergy advantages for Zee Stores logistically and enhance its footprint in retail food space.
Cash dominant
The acquisition was a cash-denominated agreement, of which Dh40 million is payable to shareholders as a dividend, and the remaining infused into Royal Horizon for capex purposes.
Zee stock's share price is expected to rise due to improved economies of scale, increased diversification and technological capacity since the merger was horizontal in nature. The subsidiary expects further growth, and thus the outlook for IHC is also one of optimism.
- Vijay Valecha is Chief Investment Officer at Century Financial.
