MENA’s M&A activity up by 9% to $8.9bn in first quarter of 2015

Cairo, Egypt (Capital Markets in Africa):- Announced deal value in Middle East North Africa (MENA) increased from US$8.2b in Q1 2014 to US$8.9b in Q1 2015, an increase of 9%, according to EY’s Q1 MENA M&A Update. In Q1 2015, 90 deals were announced as compared with 89 deals in Q1 2014. 

Inbound announced deal value increased from US$0.4b in Q1 2014 to US$2.6b in Q1 2015; while domestic announced deal activity value decreased by 48% from US$1.7bn in Q1 2014 to US$0.9bn in Q1 2014. Outbound announced deal value decreased by 11% from US$6.1b in Q1 2014 to US$5.5b in Q1 2015.

Phil Gandier, MENA Head of Transaction Advisory Services, EY says:

“The MENA M&A market continues to display resilience to the challenging regional geopolitical climate in parts of the region. The sustained volume of M&As indicates that regional M&A performance has a low correlation to oil price volatility.  The inbound M&A market performed very well compared to the same period last year which reflects the sustained demand from foreign investors. The pipeline of M&A deals looks robust for the rest of the year. According to EY’s latest MENA Capital Confidence Barometer (CCB), which looks at the sentiments of C-suite executives across the region, the majority of MENA executives (69%) expect the deal market to remain stable in 2015.”

Deal size expected to increase in 2015
More than half of MENA businesses are planning for larger deals in the coming year, compared to 28% who said they would maintain the current transaction strategy, according to the CCB.

Average deal sizes are going up primarily as a result of activity in certain sectors. In the last couple of years, this has largely been focused on defensive sectors – education, healthcare and consumer, which for the most part were small-scale. More recently, though, there has been more activity in the oil and gas and financial services sectors, where transactions tend to be larger.

 Anil Menon, MENA M&A and IPO Leader, EY, says:

“Deal flow is looking very healthy, underpinned by the re-emergence of Egypt and the bounce back of other markets that had slowed in recent years. This year we are likely to see many more outbound deals as overseas forays are back on the MENA radars. Around one third (34%) of businesses in the region plan to focus on investing in new geographies and markets for organic business growth, compared with just 6% a year ago.” 

Acquisition opportunities remain high driven by fair valuations 

MENA CCB respondents are optimistic about pursuing acquisitions. The number of acquisition opportunities remains high at 68%, broadly in line with the global trend, and deal pipelines in MENA look to be getting stronger.  The survey shows  that 28% of MENA businesses have three deals on hand, up from 9% last October. The number of MENA businesses with an average of five deals in the pipeline has also increased over the past six months.  

“Appetite for acquisitions remains high in MENA, driven mostly by appropriate valuation expectations from both sides of the isle. The valuation gap in MENA is lower than the global trend, which suggests the market is not overheated. More than two-thirds of MENA businesses see either no valuation gap between buyers and sellers and the vast majority (81%) of MENA executives see this staying the same through the year. This should support more deal closures in coming months,” says Anil. 

Within MENA, small-to mid-market deals, below US$250m, will continue to figure prominently in executives’ plans, particularly among the dominant family-owned businesses. The survey shows that 88% of MENA executives will look for deals in the lower middle market, up from 77% six months ago. The mid-market sectors are primarily targeted by family businesses, a constituency that has been focused on reconfiguring portfolios and institutionalizing their business. 

“The CCB reveals that MENA family businesses have shifted their interest away from emerging market entries, where the capital flows from an M&A perspective have not been active. This underlines a broader shift in the region, which is seeing it transform from a net exporter of capital, to one in which more acquisition capital is being deployed by Middle Eastern investors within the region.  M&A plays are increasingly likely to follow the trajectory of domestic spending in social infrastructure and defensive businesses. Oil price stability, continued government spending and a calming of regional tensions will provide further impetus for M&A in the region,” concludes Phil.