There will be no more of the elephant-sized deals in the Gulf’s mergers and acquisition market — but the time is ripe for smaller deals, according to Alberto Palombi, managing director and head of Middle East and North Africa territory at the Swiss bank UBS.

“In comparison with $45 billion merger that happened in Saudi banking or the FAB merger or the triple ADCB-UNB-Al Hilal merger that happened, we are not going to see so many of those,” he said. “A lot of M&A pipeline has been driven by banking consolidation. If you take those out then there wouldn’t be so much M&A.

But still, transactions are there and at a good flow. Hopefully, we would see more transactions happening in the next 24 months.”

Setting the agenda

M&A has been the top driver of investment banking activity in the region. The world’s largest oil producer Saudi Aramco brought a 70 per cent stake in Saudi Basic Industries Corp. (Sabic) from the kingdom’s wealth fund for $69.1 billion in one of the biggest deals in the global chemical industry.

There have been high-profile mergers in banking as well. The merger between Saudi British Bank (SABB), the HSBC Holdings affiliate, with Alawwal Bank created Saudi’s third largest bank with an asset size of more than 257 billion riyals. In 2017, National Bank of Abu Dhabi merged with First Gulf Bank to create UAE’s largest bank, with assets in excess of Dh670 billion.

New sectors will enter M&A fray

“The next wave of consolidation would come from consumer, retail, health care, and these would play a bigger role,” the UBS official added.

Companies in the Gulf have been resorting to consolidation as economy shrinks, forcing firms to minimise cost even as revenues fall. “There are so many reasons why a transaction happen. The current macroeconomic environment is not helping and growth is a little more difficult to achieve. Shareholders and managements are focusing more on efficiencies, cost reduction and synergies,” he added.

IPO activity

Palombi said there were a few primary offerings that they were aware of. “In the last four to five months we had two big IPOs with listings done in the UK. The IPO pipeline has been decent in the past 12-18 months, and we know a few companies that are planning in terms of listing.” (Finablr and Network International were the two to list in London.)

Saudi Arabia led the primary market activity in the second quarter with three deals worth $1.02 billion led by privatisation activity, according to data from Ernst and Young. The second quarter witnessed a sizeable improvement in IPO activity, both in volume and value, when compared to a single IPO that raised $57.6 million in the first quarter of 2019.