Busy year forecast for mergers

M&A deals could jump 20 per cent in 2011 as a return to lending, improved capital debt markets and rising oil prices boost sentiment

Merger and acquisition (M&A) deals in the Mena region are expected to climb 20 per cent this year with most activity coming from Qatar and Saudi Arabia, bankers say.

Estimates for the value of mergers and acquisitions this year were as high as US$45 billion (Dh165.28bn), a 10 per cent increase on projections for last year, as increased willingness to lend, an improvement in corporate debt markets and rising oil prices buoyed sentiment, according to a poll of 30 Mena investment bankers by the consultancy M:Communications.

Qatar's Fifa World Cup 2022 winning bid is expected to fire up the GCC projects market, while the announcement of Saudi Arabia's biggest ever annual budget of $155bn has triggered hopes of activity for business across the region.

A $12bn merger between Etisalat, the UAE's biggest company by market capitalisation, and Zain, Kuwait's mobile telecommunications firm, is expected to head the M&A list this year, but two-thirds of bankers questioned said smaller transactions would be the focus of attention. Most of the these deals are forecast to come from the financial services sector.

"I'm much busier this time of the year, compared to the same time last year," said Albert Momdjian, the managing director and head of coverage and investment banking, Mena, at Credit Agricole.

"The personal financing for corporates in the region will not be as easy as it was a few years back and the only way to get some money back is to merge with other entities or sell and get a good price," he said.

Cash-rich sectors, such as oil and gas, are likely to weigh regional and international M&A opportunities, the report said. Sovereign wealth funds are also expected to deploy significant cash.

More than half of banks questioned also expected a rise in recruitment this year. The average headcount increase forecast by the bankers was around 10 per cent.

But with $70bn of debt due for refinancing in the GCC, over-leveraged companies face limited options if equity markets do not open up and additional debt capacity is limited.

M&A volumes in the Middle East have dwindled in the aftermath of the global financial downturn, as companies have focused on restructuring. Large valuation gaps between sellers and buyers have also exacerbated the slowdown.

Axiom Telecom's fourth-quarter initial public offering (IPO) cancellation has reflected stagnant capital market and illiquidity. However, there are rumours in the financial community that at least three IPO are planned in Abu Dhabi. If the rumours turn out to be accurate, bankers say, this would reflect a return to confidence.