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Mena M&A Deals Fall 24% in Q3

Unlike global respondents, who see a rebound in deal activity from six months ago, interest from Mena executives is on the wane
UAE witnessed the largest deal in Q3 with the acquisition of Media.net Advertising Ltd by Investor Group from China for $900 million.UAE witnessed the largest deal in Q3 with the acquisition of Media.net Advertising Ltd by Investor Group from China for $900 million.

Mena M&A activity and value declined in the third quarter of 2016, recording 74 deals amounting to $5 billion, compared to 98 deals amounting to $6 billion in Q3 2015, says top professional services firm EY in a new report.

The (Persian) Gulf Cooperation Council Arab states (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) dominated deals in the third quarter, representing 92% of total deal value and 77% of total deal activity, said EY’s Q3 2016 M&A report, TradeArabia reported.

Deal activity in Q3 decreased across all transaction types; inbound deal activity decreased by 42%, outbound deals decreased by 24% and domestic deals decreased by 10% compared to Q3 2015.

The UAE was the most attractive destination for M&As in region, leading as the top target country by deal value at $17.1 million for 14 deals.

The country witnessed the largest deal in Q3 with the acquisition of Media.net Advertising Ltd by Investor Group from China for $900 million. The consortium is led by Zhang Zhiyong, the chairman of telecom firm Beijing Miteno Communication Technology Co.

In terms of sectors, media and entertainment, real estate and airlines were the top three target sectors by deal value in Q3 2016.

Phil Gandier, Mena Transaction Advisory Services Leader, EY, said: “Mena companies’ interest in pursuing M&As is lower compared to October last year, and is currently below the long-term average level.  The key driver behind this is lower CEO confidence, given the macro-uncertainties in the Mena region. Market fundamentals that are affecting M&A performance such as low interest rate and low growth rate are still prevalent.”

  Interest Waning

Unlike global respondents, who see a rebound in deal activity from six months ago, interest from Mena executives is on the wane, with 21% expecting their company to pursue a merger or acquisition in the next year, according to the latest EY Capital Confidence Barometer.

Qatar and Egypt are particularly quiet on the M&A front, whereas the UAE is feeling most optimistic, with 37% looking to make a deal.

Mena executives cite geopolitical uncertainty and high volatility in currencies and commodities as the greatest economic risks to their M&A strategy, as well as the slowdown in global trade flows that all countries in the region are experiencing.

While deal fundamentals remain relatively stable at local levels, with more respondents feeling better about the number of acquisitions, they are less optimistic overall about the quality of acquisition opportunities and the likelihood of closing, largely as a result of macroeconomic issues.

However, that has not stopped Mena companies from filling their pipelines in the hope of movement down the road, with 67% of Mena CCB respondents indicating that they have five or more deals in the pipeline versus 49% of global respondents. For 40% of Mena executives their pipeline numbers are expected to increase in the next 12 months.

  Differing Ideas

Although 32% of Mena executives suggest that new product or service innovation is the key strategic driver for pursuing acquisitions outside of their own sector, the objectives of each country differ slightly.

In Saudi Arabia, for example, half of the executives surveyed say that access to new materials or technology was their number one priority. In Egypt, every company is looking for deals that help them address changes in customer behavior. For all countries, their second most important driver is acquiring talent to deal with the disruption new technologies and digitalization bring.

“In the next 12 months, companies in the region will have interesting capital allocation decisions to make as liquidity remains tight and value pockets remain unclear. Given the commitment governments have made in the region to economic stabilization and reform, and an expected rebound in oil prices, we expect to see economic confidence and deal intentions to improve in 2017,” concluded Gandier.

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