A.T. Kearney, a global strategic management firm says that many companies emerge more careful in their expansion strategies after the economic crisis. However, companies that look to take advantage of the current situation by orches¬trating “game changing” initiatives; such as mergers and acquisitions are best positioned to emerge as winners when the upswing arrives. Several MENA real estate developers are, according to A.T. Kearney, favorably positioned to use acquisitions as a lever for future growth and competitiveness.
Statistics show how the crisis has resulted in careful expansion plans globally as M&A deals have declined dramatically. The value of deals globally fell from $3.7 trillion in 2007 to $2.3 trillion in 2008, a staggering 38 percent decline. Statistics for the first half of 2009 show a 35 percent decline to $1.14 trillion. Simultaneously however the global value of publicly listed companies has in general been slashed; leaving ample opportunities for forward looking companies with solid balance sheets to consider acquiring under-valued assets or corporations. M&A activity has already showed signs of recovery across sectors in Q1 2010.
“Clearly, M&A is not the right strategy for all real estate players in the region. For players purely seeking local growth, asset acquisition from distressed developers may make more sense than corporate M&A, but to become a leading regional or international player now is as good a time as any to consider M&As as part of the strategy” said Olivier Laroche, manager Real Estate Practice, A.T. Kearney Middle East.
It is inevitable that the currently fragmented real estate industry in the Middle East will need to become more concentrated to secure long term competitiveness. In comparable markets internationally, A.T. Kearney has found that the 3-4 biggest developers represent more than 70 percent of the market, whereas in the Middle East clear regional champions still have to emerge. Consolidation in a country like Singapore with a more mature real estate market has seen consolidation increase in the past decade. Singaporean CapitaLand has been a driving force in the market consolidation by executing 11 major acquisitions between 2002 and 2009.
“Winning companies in the Middle East will be those that are well positioned to take advantage of M&A opportunities in light of a broader growth strategy. It’s a buyer’s market, and companies that act now are likely to emerge as winners when the upswing arrives” commented Dan Starta, managing director and partner, A.T. Kearney Middle East.
A.T. Kearney research of M&As highlights that only 29 percent of all mergers create value. To create value companies must firstly merge for the right reasons. For regional real estate developers these reasons should enforce the strategic direction of the company, i.e. seek to consolidate the industry and gain market share, acquire trained workforce, new capabilities and know-how, strengthen local competitive advan¬tage, diversify in new lines of business as well as expand geographic reach and coverage to capitalize on an improving economy.
Secondly it is important for companies to consider the size of the deal to realize the expected value. Across industries, it is according to A.T. Kearney becoming increas¬ingly popular to acquire medium or smaller-sized firms, which are more easily integrated into operations and over time support organic growth. The regional real estate industry fits well with the model of small to medium sized M&A opportunities.
Recent A.T. Kearney research has found that several GCC developers are well placed to take advantage of the current situation. The analysis identifies several listed developers that seem well placed to make some aggressive moves. Emaar and to a lesser extent Deyaar and Sorouh are among those in the UAE. Within MENA, Saudi-based Dar Al Arkan and Al Akaria, Qatari-based Ezdan Real Estate, Kuwait-based Al-Mazaya, and Morocco-based CGI are all positioned to play a leading role in the consolidation process.
“It is a buyer’s market and those developers who manage to pick up the right deals and realize the full business potential from these deals will change the game of real estate developments and emerge as winners. Now is as good a time as any for deal making,” concluded Olivier Laroche, manager Real Estate Practice, A.T. Kearney Middle East.