Property top M&A performer in Middle East

The M&A scene in the Middle East differs somewhat to that world-wide, where deal activity rose last year 47 per cent to US$3.5 trillion, the highest value globally since 2007, based on Thomson Reuters data.

The most active M&A sector globally was media while in the Middle East property was the top performer. The biggest deal globally last year was the announced merger between Time Warner Cable and Comcast, the two biggest US cable providers, creating an entity with an enterprise value of about US$70 billion.

Ninety-five deals with a value greater than $5bn were announced last year, more than double the value and number of large-cap deals announced in 2013.

“There is less large corporate M&A both intra-region and out of region [than in Europe and US] and that’s because the listed company base in the region is still quite small, so actually your largest corporates are really the largest family groups,” says Richard Rollinshaw, a Dubai-based partner with advisory PwC.

“There aren’t as many large companies like [in the US and Europe] that are independent enough and act as large corporates in their own right for whom M&A is one of their growth levers.”

Although big ticket deals in the region are rare, last year saw the closing of the merger of the aluminium smelters Dubal and Emal into Emirates Global Aluminium, which has an enterprise value of $15bn.

Also there is a large mid-cap sector in the United States and Europe, unlike the Middle East and North Africa (Mena) region.

“There is a strong underlying mid-cap sector in both of those geographies [US and Europe] that provides a steady flow of M&A volume, with transaction sizes around the $500 million to $1bn mark,” says Patrick Delivanis, Morgan Stanley’s head of investment banking for Mena. “It is very big and that sector provides a base of M&A activity, which for the most part does not currently exist here because the economy is structured in a different way. There is more government sector participation in the local economy here than in places like the US or Europe, and as a result the private sector represents a smaller share of the overall economy.”

Although M&A laws in the region are being amended, there needs to be more flexibility when it comes to doing stock deals, experts say.

Also many of the publicly traded firms have foreign ownership restrictions, dampening appetite for such deals.

“We see fewer public M&A deals in the Middle East than what we see in the US and in Europe,” says Chris Lester, an Abu Dhabi-based counsel with Latham & Watkins.

“In 2014 we saw a lot of large public M&A deals in US and Europe, particularly in the pharmaceutical sector. We don’t see that here, partly because of difficulty of doing stock deals,” he says.

“Foreign ownership restrictions also limit M&A in the Middle East.”

Follow The National's Business section on Twitter