M&A set to surge as IPOs taper and liquidity tightens up

Mena M&A deals by value will increase between 20 and 30 per cent, while deals by volume will rise by 5 to 10 per cent.

The value of mergers and acquisitions in the Mena region is expected to rise by up to 30 per cent this year as initial public offerings dwindle, funding channels tighten and valuations become attractive, according to National Bank of Abu Dhabi.

Mena M&A deals by value will increase between 20 and 30 per cent, while deals by volume will rise by 5 to 10 per cent, said Omar Mehanna, the managing director and global head of merchant banking, securities and funds administrations services at NBAD.

The slump in the equity markets has driven companies to postpone or cancel IPOs.

Meanwhile, tightening bank liquidity and high rates in the Arabian Gulf will make it harder for companies to refinance old debt or raise new funding.

Also the price-to-earnings ratios of publicly listed companies have come down with the equity market rout, making valuations attractive.

“I think that those corporates are going to find it increasingly difficult to finance at favourable terms because of tightening liq­uidity within the region,” said Mr Mehanna. “They may have to monetise some of their assets through M&A activity. We see that the dynamic – that public market valuations are becoming more realistic – is favour­able towards M&A.”

One of the big acquisition deals announced this year is that of Kuwait Food, or Americana.

A group of Gulf investors led by the Emaar chairman Mohamed Alabbar signed an initial agreement last month to buy a maj­ority stake in Americana from Kuwait’s Al Kharafi family.

Mr Mehanna expects most of the big M&A deals to be in the fin­ancial, and the oil and gas services space and mid-cap deals to take place in the healthcare, education as well as industrial and transportation sectors.

“I actually think that in terms of outbound deals you will probably see more corporates diversifying slightly outside of the region, deploying slightly more capital there,” said Mr Mehanna. “I don’t expect to see a noticeable uptick in sovereign wealth fund activity, which historically has been the driving force in terms of outbound transactions – but certainly, maybe a slightly less percentage increase year-on-year in terms of outbound.”

Sovereign wealth funds are retreating from the M&A scene as lower oil prices reduce their oil income and turn the spotlight on plugging fiscal deficits though the drawdown of reserves and sale of assets.​


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