Dubai: Merger & acquisition deals across the Middle East and North Africa (Mena) region declined sharply year-on-year, falling 21.8 per cent in the first quarter of 2018, according to EY’s first-quarter 2018 M&A report.
Mena M&A activity saw 93 announced deals in the first quarter of 2018, compared to 119 deals in the first quarter of 2017. The total disclosed deal value in the Mena region also dropped by 26.7 per cent in the first quarter this year to $15.4 billion (Dh56.56 billion), compared to $21 billion in the same period last year.
The UAE saw the highest deal value with $5.1 billion from 23 deals announced in the first quarter of this year.
The period saw inbound deal activity and value increase; however, both deal activity and value declined for outbound and domestic transactions.
The announced number of inbound deals stood at 27, up 42.1 per cent from the 19 deals announced in the first quarter 2017. Inbound deal value increased by 138.7 per cent to $7.4 billion in the period, up from $3.1 billion year-on-year.
The number of outbound deals fell from 41 deals in the first quarter of 2017 to 29 deals in the same period in 2018, while outbound deal value fell 63.8 per cent.
The Mena region also saw a decline in domestic deals as they fell from 59 announced deals in the first quarter of 2017 to 37 deals in the first quarter of 2018, with domestic deal value falling by 28.2 per cent.
“Confidence in the economy remains strong, though Mena companies are taking a pause as rising inflation, market volatility, and high deal valuations have businesses looking to preserve capital rather than deploy it in the short term. In particular, companies in Saudi Arabia and Egypt are taking a wait-and-see approach. Last year, UAE companies dominated both inbound and outbound M&A activity and we expect the UAE to continue driving Mena deals in 2018,” said Phil Gandier, Mena Transaction Advisory Services Leader at EY.
Oil and gas
The sector with the highest deal value in the first quarter of 2018 was oil and gas with an amount reaching $7.2 billion. The chemicals sector followed with a deal value of $2.5 billion and the insurance sector had the third-highest deal value at $1.2 billion.
Rounding out the top five sectors by deal value in the first quarter of 2018 were provider care and technology, both with deal values of $1 billion.
“Although deal volume has been modest in the first quarter of 2018, deal values relating to acquisition capital deployed in Mena in [the first quarter of] 2018 have reached their highest levels since 2001, with $10.2 billion invested in the region. The insurance, medical and education sectors have seen the highest allocation of acquisition capital,” said Gandier.
Executives in the region are feeling optimistic about the Mena economy, with 98 per cent saying they see it as improving or stable, according to the latest EY Capital Confidence Barometer (CCB). Furthermore, 73 per cent of respondents expect the local M&A market to improve this year, with 37 per cent of executives actively pursuing mergers and acquisitions over the twelve months.
Almost 80 per cent of Mena boards are focusing on portfolio transformation over the next six months in an effort to become more agile and responsive to market volatility and better prepare their organisations for the future.
“Mena executives see portfolio transformation as a means to further strengthen their companies to achieve long-term competitive advantage. While the majority of executives conduct portfolio reviews annually, an increasing number are undertaking reviews on a more continuous basis,” said Anil Menon, Mena M&A and Equity Capital Markets Leader, EY.
More than a quarter of CCB respondents say that they are reviewing their portfolios more frequently than three years ago, largely because of threats to their business from digitally-enabled competitors and start-ups, as well as the impact of digital technology on their business models. Saudi Arabia especially has been active in stepping up its portfolio reviews in recent years.
