Value of M&A activity falls 54%

Dubai: Mergers and acquisitions (M&A) deals announced in the Middle East and North Africa dropped by 54 per cent in value to $7.14 billion in the third quarter of 2009, compared to deals worth $15.64 billion announced in the same period last year, according to a latest report by Ernst & Young.

M&A activity has also fallen 26 per cent in terms of the actual number of announced deals. A total of 97 deals were announced in the third quarter of 2009 against 134 in the third quarter of 2008, the report said.

The value of the domestic deals dropped by 60 per cent from $6.3 billion in third quarter 2008 to $2.55 billion in third quarter 2009. The value of outbound deals also fell by 54 per cent, from $8.95 billion in the third quarter of last year to $4.15 billion in the same period in 2009.

"Within these disclosed deals, the number of outbound deals was down from 42 in third quarter 2008 to 25 in third quarter 2009, a drop of 40 per cent, while domestic deals fell from 75 to 53.

However, the number of inbound deals increased from 17 in the third quarter of last year to 19 in the third quarter of 2009 — an increase of 12 per cent," the report said.

Although deals worth a total $188 billion were transacted between 2005 and 2009 in the Arab world, there has been a considerable drop this year, to almost a standstill. This is not expected to change in 2010.

Private equity companies will probably be the most active players in M&A in 2010, according to Gulf Capital, a leading private equity firm.

Average deal size also fell from $184 million in third quarter 2008 to $166 million in third quarter 2009. Deals with size greater than $500 million have dropped from 9 per cent to 7 per cent in value terms during the same period.

‘Global meltdown'

"The global meltdown has changed the dynamic of businesses in all regions and the key to success seems to be M&A. With the right partnerships at fair valuations, with good synergies and value additions in the business, success can be achieved post market-recovery," said Edmund O'Sullivan, chairman of Meed Events, which organised a conference on mergers and acquisitions.

The update reveals that deals less than $100 million decreased marginally from 64 per cent in third quarter 2008 to 63 per cent in the third quarter of 2009. An increasing trend was observed towards medium sized deals (deals valued between $100-$500 million) which rose from 27 per cent in the third quarter of 2008 to 30 per cent in the same period in 2009.

Dr Karim Al Solh, CEO of Gulf Capital, said the sectors that attracted most of the investments were financial, telecom, real estate and construction, which accounted for the majority of the deal values. More than 70 per cent of the total $188 billion invested in the Arab world during this period went to these four sectors.

Buyouts

According to the research findings, acquisitions accounted for 48 per cent of the M&A deal value at $90 billion, with minority investments consisting of a substantial 44 per cent of the total, or $80 billion. "Buyouts formed the smallest share at a mere $4 billion of the total."

The main barriers in conducting M&A in the region is finance acquisition (52.3 per cent), asset valuation (46.6 per cent) and regulations (40.9 per cent), while the most likely elements to be considered when conducting a deal is cash contribution (50 per cent), bank facilities and bridge/acquisition financing (46.6 per cent), and equity raising (45.5 per cent), according to a survey.

Phil Gandier, head of Transaction Advisory Services at Ernst & Young Middle East, said: "Saudi Arabia topped the country charts for the number of M&A deals with 14, followed by the UAE and Kuwait, both at 11. Jordan and Egypt had 10 and 8 deals respectively.

The top sectors were banking and financial services and diversified industrial products, both with nine deals followed by oil and gas with eight and asset management with seven deals."

UAE-based Advanced Technology Investment Company's acquisition of Singapore-based Chartered Semiconductor at $1.8 billion was the largest deal in third quarter 2009.

This was followed by a Moroccan domestic transaction wherein RMA Watanya, Fipar Holding and FinanceCom acquired Medi Telecom for $1.13 billion.

Phil Gandier, head of Transaction Advisory Services at Ernst & Young Middle East said:"The number of domestic transactions comprised almost 55 per cent of the total M&A activity followed by inbound and outbound deals at 25 per cent and 20 per cent respectively."