With the global focus again on the Middle East political situation, the past few weeks have been a period of reassessment for the specialist investment bankers.
They have been building up their business in the Middle East in expectation of a wave of corporate mergers and acquisitions activity.
But the political convulsions in Tunisia and Egypt, and the possible repercussions in other Middle East countries, have caused some to pause for thought. Forecasts of amergers and acquisitions (M&A) boom have been reassessed and in some cases downgraded.
There is, however, a general feeling that the fundamentals of the region still offer a big opportunity to the specialist advisory "boutiques" that have been expanding their presence recently in the region.
One of the newest entrants, but also one of the busier, is Moelis & Co, an advisory firm with origins on the US West Coast. The company played a big role as financial counsel to the Dubai Government during the restructuring of Dubai World.
"It is too early to tell how the political changes in Egypt will affect the regional M&A pipeline, but I do believe Egypt will continue to be an important part of the region's economy," says Augusto Sasso, the head of the 10-strong team of Moelis executives based in Dubai. "It sits at the crossroads of trade between Europe and the Middle East and has a well-established industrial base."
That feeling of guarded optimism, despite the volatility that has hit Middle East markets since the protests in north Africa and elsewhere, is evident at other firms too.
Chris Hawley, the head of corporate M&A in the Middle East at the global advisory firm Rothschild, agrees: "There is still a more developed pipeline for M&A this year, but Egypt is clearly a worry, impacting the perception of risk in the region. There will be a bigger risk premium, and also a widening of the valuations between vendor and buyer. But that doesn't mean deals will not get done."
Another bank that has been expanding quickly in the region is Lazard. Its head of operations in the region, Mian Zaheen, gives this view of the market: "The M&A market in the Middle East looks more robust than it has been for the past few years.
"Geopolitical unrest is always a concern, but as yet the M&A market in the region remains unaffected by the situation in Egypt."
A report this month by the public relations firm M Communications and corporate analysts Zawya said bankers it had polled predicted a 20 per cent increase in deal volume this year. This would be fuelled by the mid-market, which is largely family owned, and medium-sized firms.
Forecasting deals by value showed a wider range, varying from US$16 billion (Dh58.77bn) to between $40bn and $50bn, with one estimate as high as $68bn. The value of M&A transactions last year was estimated at $28bn to $30bn by M Communications-Zawya.
"International investors are scrambling to reassess Middle East emerging market exposure in the wake of Egypt's January 25 revolution. On the upside, bankers say that knee-jerk reactions should give way to a much more positive long-term outlook," the report said.
One banker, who declined to be identified, says: "M&A will still be healthy, potentially flat to up from last year."
In one respect, the political volatility in the region will have a benign effect on corporate M&A. The oil price is still the most important economic indicator for Middle East economies, and this has increased in recent weeks as global markets foresee possible disruption to supplies.
"Rising oil prices have led to growing cash balances, which means that governments and sovereign wealth funds [SWFs] can now turn their attention to balanced growth and diversification," says Mr Sasso of Moelis.
Rothschild's Mr Hawley agrees. "With the price of crude on the rise, the SWFs will continue to be active this year, both in inward and foreign investment," he says. Many regional governments assume an oil price of as low as $50 in their budgets, compared with recent prices above the $100 per barrel level.
"As the price of oil has risen, some countries will have an increased surplus that could be used for investment in key sectors," says Lazard's Mr Zaheen.
Another issue is financial liquidity and the availability of capital for big corporate deals. The financial downturn hit the balance sheets of the banking, industrial and service sectors hard, but the twin processes of recapitalisation and restructuring, especially in the GCC region, has accelerated, which some experts believe will be a spur to increased M&A activity.
Nonetheless, financial considerations remain a concern. Mr Sasso says: "The main challenge to M&A in the GCC is access to liquidity in the capital markets. Historically M&A has been driven largely by the availability of debt. In some parts of the region, like Dubai, there is still too much leverage, but that is part of a global phenomenon."
Mr Zaheen echoes that view. "Financing remains a major challenge in the region," he says. "Banks may have liquidity but the desire to lend has been reduced. They are being much more selective, and as a result the cost of financing has risen."
Mr Hawley says: "The main factors influencing the M&A market have been the tightness of liquidity and the restructuring that has already gone on. How far central bank pressure will filter down through the banking to the corporates could have an important influence."
Among the specialist advisers there is widespread agreement as to which sectors will be the scene of increased corporate activity."Governments and SWFs will pursue selective acquisitions to strengthen core portfolio companies and expand in key areas of focus: oil and gas, natural resources, chemicals and industrials," says Mr Sasso. "We're likely to see consolidation in several sectors including banking, airlines, telecom and energy."
Mr Zaheen broadly agrees: "The sectors where we see most likelihood of increased M&A activity are industrials, support services and infrastructure. The appetite to industrialise continues to grow particularly in the Gulf states, where non oil-related industry is required for diversification purposes. The demand for support services continues to grow as the population rises and modernises."
Mr Hawley also believes the banking sector is on the cusp of a renewed bout of corporate activity. "The elephant in the living room is bank consolidation," he says. "Many in the region are government owned or linked, which might make it more difficult, and regulatory factors might also be an issue for cross-border consolidation. But many are ripe for consolidation."
The M&A specialists are also rubbing their hands at the prospect of privatisation of assets, as the Dubai Government recently adopted as broad policy to deal with debt repayments and cash flows. "We'd love to get involved in that, and there the benefits of independent advice will really come through," says Mr Sasso.
Despite the protests taking place in the Middle East, most specialist bankers believe corporate M&A activity is here to stay.