What makes the UAE a M&A haven in the ME?
The UAE alone made up 65% of inbound and outbound M&A deals in the Middle East (ME) during the first six months of 2018, according to Baker McKenzie, a multi-national law firm.
ME M&A deals surged 62% to $25.4 billion in H12018 from $15.7bn a year earlier.
Cross-regional M&A deal activity also increased by value by 22% and volume, up 13%, in H1 2018 compared to H1 2017, with Emirates NBD Bank’s $3.2 bn acquisition of Turkey-based Denizbank ranked as the top cross-regional deal in H1 2018.
“The UAE was the most attractive target country to overseas investors in H1-18, with a total of 34 inbound deals valued at $6.6 billion,” the report showed.
“We continue to see healthy investor appetite and deployment of capital into the Middle East, particularly in the UAE with its strong underlying economic fundamentals and openness to foreign investment,” said Will Seivewright, corporate/M&A partner at UAE-based Baker McKenzie Habib Al Mulla.
65% of all ME M&A activity was cross-border in nature in the first half of 2018 and the UAE continued to drive both inbound and outbound M&A in the region, according to Baker McKenzie.
Internal ME deal values in H1 2018 also spiked three-fold compared to H1 2017, driven largely by the pending $5 billion merger of Saudi Arabia British Bank (SABB) and Alawwal Bank in Saudi Arabia.
Omar Momany, Head of Corporate/M&A at Baker McKenzie Habib Al Mulla, based in the UAE said: “With a handful of standout mega deals and the governments across the Middle East cantering to implement investor-friendly reforms and policies, the region is set to experience promising levels of M&A activity in the second half of the year.”
Inbound Cross-regional Middle East M&A
The value of cross-regional deals targeting the ME increased from $6.4 billion in H1 2017 to $8.1 billion in H1 2018, with a striking 174% increase in the first half of the year compared to the end of the second half of 2017, the report shows.
Deal volume also rose by 26% in H1 2018 with a total of 54 inbound deals, compared to H1 2017.
“Inbound deal activity was driven by the acquisitions of Abu Dhabi National Oil Company’s oil field concessions by Austria’s OMG AV and French oil and gas giant Total SA, amounting to $2.6 billion,” said the report.
The UAE was the most attractive target country to overseas investors in H1 2018, with a total of 34 inbound deals valued at $6.6 billion.
“India and France were the top acquirer countries by volume, with seven deals each, while Austria was the top acquirer country by value, investing $1.5 billion on one of the Abu Dhabi oilfield concessions.”
The Energy & Power sector was the most attractive target sector in respect of inbound Middle East investment, both by volume and value in H1 2018, with a total of 15 deals amounting to $7.4 billion.
UAE also active acquirer
By value, outbound cross-regional deals from the Middle East increased by 20%, from $6.3 billion in H1 2017 compared to $7.6 billion in H1 2018. Deal volume was also up by 9% in H1 2018 with a total of 82 outbound deals.
The UAE was the most active acquirer country both by volume and value in H1 2018, comprising more than 75% of the total value of cross-regional deals originating from the Middle East, with $5.8 bn out of 35 outbound deals.
The US was the top target country by volume with 13 deals, while Turkey was the top target country by value.
The Industrials sector was the top target sector by volume of deals originating from the ME in H1 2018 with 16 outbound deals, followed by the Financial Services sector with 11 deals, the latter the top target sector by deal value, registering aggregate deal values of $3.2bn.
Karim Nassar, Corporate/Capital Markets partner at Baker McKenzie’s associated firm in Saudi Arabia added, “The governments across the Middle East continue to drive their economic reform agenda and align with international standards, as evidenced by the privatization and consolidation trends across industry sectors in the region and the demand for capital and business growth overseas.”
Q1 not so great
M&A deals across the ME and MENA region declined sharply year-on-year, falling 21.8% in Q1 2018, according to an Ernest & Young’s (EY) report.
The total disclosed deal value in the MENA region also dropped by 26.75 in Q1 to $15.4bn, compared to $2bn.
Still the UAE saw the highest deal value with $5.1 billion from 23 deals announced in the period.
The sector with the highest deal value in the first quarter of 2018 was oil and gas with an amount reaching $7.2bn.
Tax and advisory firm PricewaterhouseCoopers (PwC) said in a new report “TransAct ME – Deals trends and outlook for the Middle East” that transformational reform, including, for example, recently announced changes in Merger and Acquisition (M&A) regulations and foreign ownership rules, is playing its part in stimulating the deal market across the region, according to PwC Middle” published today.
“While deal volumes have decreased over the past two years, there are some positive signs of activity picking up and this is expected to gain momentum towards the end of 2018 and early 2019,” said PwC.
“That said, achieving organic growth and bridging the valuation gap in certain sectors are just some of the challenges that investors and owners continue to face.”
Saudi seeks to create an investor-friendly climate for privatization, and the UAE’s digitization agenda for 2021 will create M&A opportunities across a range of sectors including financial services, transportation and logistics and retail, opined PwC.
PwC’s recent Middle East 2018 CEO survey revealed more than half of those surveyed considering a strategic alliance or joint venture in order to drive corporate growth and profitability as organic growth proves more challenging.