Middle East M&A deal volume declines in first half of 2017

The value of announced deals has also retreated as investors focus on low-risk markets outside the region

Notable mergers between FGB and NBAD, and Mubadala and Ipic, are game-changers for the UAE as the country looking ahead towards a future not exclusively reliant on oil Mona Al Marzooqi and Silvia Razgova / The National
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Mergers and acquisitions (M&A) in the Middle East and North Africa (Mena) region have slumped in terms of volume of transactions executed and value of deals announced, during the first-half of 2017, as investors focus on low-risk markets outside the region, plagued by political uncertainties and slowing economic growth.

The number of deals executed in Mena, dropped by 23 per cent to 192 transactions in the six months to June from 250 deals recorded for the same period in 2016, the auditing and consultancy firm EY said on Sunday. The value of deals announced in the Mena, also decreased by 17 per cent to US$31.9 billion in the first-half 2917, down from $38.9bn from a year earlier.

Economies in Mena region - home to Opec's biggest oil producer Saudi Arabia and the top global liquefied natural gas exporter Qatar - are slowing on the back of persistently low prices that have slumped from mid-2014 peak of $115 a barrel to the $50 level. That has led governments to reassess budgets, subsidies and public spending. Qatar’s diplomatic tussle with the quartet of Saudi Arabia, the UAE, Bahrain and Egypt, now in its third month has also affected investor sentiment in Doha.

Outbound deals have accounted for the highest value during the first half of this year, reaching a total of $19.6bn from 61 deals, according to EY.

Some “61 per cent of the acquisition capital was allocated outside Mena, making it a net exporter of capital”, said Phil Gandier, Mena transaction advisory services leader at EY. “We expect this trend to continue for the remainder of the year as investors continue to see more value and lower risk in non-Mena markets.”

The Dubai Aerospace Enterprise acquisition of AWAS Aviation Capital for $7.5bn was the largest deal announced during the first half of this year, EY noted. Domestic deals remained on top in terms of volume with 93 transaction, pulling in $5bn in value. There were only 38 inbound M&A transactions, with value of $7.3bn, during the period.

The average transaction value of inbound deals rose by 36 per cent and outbound value by 123 per cent in first six months, compared with the same period of 2016. On the other hand, the average deal value of domestic transactions slumped 74 per cent in 2017 first half when compared to the corresponding period last year, EY said.

M&A activity in the three-month period ending June 2017 also declined from the year-earlier period. There were 80 deals announced in the second-quarter of 2017 with a value of $12.7bn, a drop from 135 deals reaching $20.1bn announced in same period in 2016, according to EY.

The oil and gas sector accounted for more than 76 per cent of the total Mena deal value registered in the first half of 2017. It was the top performer with value of transactions reaching $11.5bn in first six months to June, followed by the airline industry at $ 7.5bn; power and utilities came in with $3bn, and the chemicals sector at $2.2bn. The banking and capital markets industry, which accounted for $1.9bn, came in as fifth in the first-half sector ranking.

“There is significant deal activity in retail and consumer products as well as oil and gas, and a secular shift in capital allocation to the e-commerce and tech sectors in Mena. The market is loading up for a spate of deal announcements soon after summer,” said Anil Menon, EY’s Mena M&A and equity capital markets leader.