Massive economic reforms targeted at economic diversification and the increased participation of the private sector across the Gulf region are expected to boost mergers & acquisitions (M&A) and private equity deals in the region, according to industry experts.
“Governments in the region are moving ahead with plans to transform their economies with increased participation form the private sector,” said Phil Gandier, MENA Transactions Advisory Leader, EY.
“Saudi Arabia’s National Transformation Plan (NTP) and economic reform efforts in Iran are likely to open up new private equity and M&A opportunities in the Medium term.”
In the immediate future, the UAE is expected to be the hottest regional market for M&A deals driven by Telecoms, Media & Technology (TMT) sector, according to Mergermarket, a news and intelligence service for mergers & acquisitions.
“Our data currently suggests that TMT in the UAE will lead regional M&A activity in 2016. Based on the last six months of research, we consider this to be a ‘hot’ sector, so it is no surprise that the highest-valued UAE deal of [the first quarter] was the $292 million [Dh1.07 billion] acquisition of e-commerce platform Souq.com by Standard Chartered Private Equity limited, Baillie Gifford and International Finance Corporation,” said Kirsty Wilson, Global Research Editor at Mergermarket.
Mergermarket’s M&A Heat Chart, which indicates potential future M&A activity based on companies that may be targeted for mergers or acquisitions, shows that the region’s TMT sector could see the strongest levels of M&A activity in 2016, with 27 companies currently up for sale or likely to come on to the market.
The company also expects a relatively high level of activity in the energy, mining & utilities sector, with 15 potential mergers and acquisitions in the pipeline.
Lower performing sectors identified by Mergermarket’s Heat Chart included transportation, in which only six potential deals have been identified; construction, with only four potential deals; and real estate, with just one potential deal in 2016. Financial services, along with the pharmaceuticals, medical & biotech sectors are projected to perform moderately, with 10 potential deals each.
According to EY’s 2016 Capital Confidence Barometer (CCB), 37 per cent of Middle East and North Africa (Mena) executives expect to actively pursue acquisitions over the next 12 months.
Although low oil prices are having a varying impact on Mena countries economically, they are having little impact on M&A strategy.
“[2016 first-quarter] M&A numbers in the region have been very strong. We expect the trend to continue for the rest of the year. With more economic diversification plans in the pipeline, large global private equity players are showing interest in the region,” said Borries Y. Dackiw, managing partner of Baker & McKenzie – Habib Al Mulla.
Growing investments by regional sovereign wealth funds within the region and their increasing efforts to build in-house private equity capabilities are expected to increase their participation in regional deals — both as direct investors and co-investors with global private equity majors.
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