Across the EMEA region, 2011 was split between an encouragingly busy first half followed by a slump in M&A activity triggered by the eurozone debt crisis and political upheavals. Year-on-year M&A activity is still up, however, with 10% more deals announced this year than last and aggregate deal value up 1%.
Deal drivers: Middle East and North Africa
In 2011, political unrest dominated the Middle East and North Africa (MENA) and this, not surprisingly, had a negative impact on M&A activity.
Despite the political upheaval in Egypt, there was still some deal activity. Privatizations however were off the agenda as the military, the country’s current rulers, rejected the idea. This was reportedly the reason behind the cancellation in May of a share sale in Egypt’s third largest bank, Banque du Caire, which has assets of $9.4bn.
However, sources contacted by Mergermarket, suggested there would be no meaningful M&A activity in the country until the end of 2012. By this time the regulatory and economic environment is expected to have improved significantly and a stable government installed.
The Gulf Co-operation Council (GCC)
In the GCC, same significant transactions were completed in 2011, namely in Saudi Arabia. In mid-December the US firm, Coco-Cola, paid $980m for a 50% stake in Aujun Industries, a beverage company. And, Carlyle Group, the US private equity firm, acquired 42% of Alamar Foods in Saudi Arabia. In another Saudi deal, Saudi Telecom Company (STC) paid USD 55m for a 60% stake in local firm Cell Communications and Distribution. M&A activity is expected to continue at a modest pace throughout 2012.
While geo-political uncertainties will doubtless deter some investors from putting money into MENA, M&A is expected to continue, albeit at modest levels, with most deals closing in the $20-80m price bracket.
These deals are likely to be driven by, among other things, a narrowing valuation gap between buyer and seller and the lack of liquidity in equity and debt capital markets, which is encouraging an increasing number of corporates to look for strategic or financial investors. Large-scale restructurings in the GCC, both of family-owned businesses and government entities, is also resulting in non-core assets being put on the block. A number of private equity firms are also expected to undertake trade sales as the lifetime for holding investments draws to an end.
Some key findings in the report include:
· TMT has provided a reliable stream of high-profile, high value transactions over the past year, such as the €7.2bn purchase of UK-based software company Autonomy by HP and the €2.4bn purchase of US cloud computing business SuccessFactors by German SaaS specialist SAP.
· Across the EMEA region, the Consumer space has stood out as one of the most resilient sectors for M&A, and after the recent dip in activity, expectations point towards the second half of 2012 witnessing a resurgence in deal making.
· Healthcare and nutrition is currently a hot subsector, driven by the increasing sophistication of consumers in growth territories and the attractive margins that follow.
· The outlook for EMEA in 2012 varies significantly between countries. Germany has already demonstrated that it is poised to build a strong economic future come-what-may, and so it is not unreasonable to expect more deals to take place there this year than last.
· Mergermarket’s Heat Chart, which is based on proprietary news intelligence tracking prospective company sales, indicates the second half of 2011 saw an 18% reduction in the number of ‘company for sale’ stories as tracked by Mergermarket compared with the first half. This represents a considerable correction after the optimism seen early in the year, and is reflective of a difficult six months that has damaged the overall deal making outlook.
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