Announced deal value in Mena increased to $8.9 billion in the first quarter (Q1) of 2015 from $8.2 billion during the same period last year, marking an increase of 9 per cent, a report said.

In Q1 2015, 90 deals were announced as compared with 89 deals in Q1 2014, according to the Q1 Mena M&A Update released by EY, a global leader in assurance, tax, transaction and advisory services.

Inbound announced deal value increased from $400 million in Q1 2014 to $2.6 billion in Q1 2015; while domestic announced deal activity value decreased by 48 per cent from $1.7 billion in Q1 2014 to $0.9 billion in Q1 2014.

Outbound announced deal value decreased by 11 per cent from $6.1 billion in Q1 2014 to $5.5 billion in Q1 2015.

Phil Gandier, Mena head of Transaction Advisory Services, EY said: “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 per cent) expect the deal market to remain stable in 2015,” he added.

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 per cent who said they would maintain the current transaction strategy, according to the CCB (Capital Confidence Barometer), the update said.

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; which tend to perform well in relation to other industries during a period of market or economic weakness, such as education, healthcare and consumer products, 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, according to the update.

Anil Menon, Mena M&A and IPO leader, EY, said: “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 per cent) of businesses in the region plan to focus on investing in new geographies and markets for organic business growth, compared with just 6 per cent a year ago.”

Mena CCB respondents are optimistic about pursuing acquisitions, the update said. The number of acquisition opportunities remains high at 68 per cent, broadly in line with the global trend, and deal pipelines in Mena look to be getting stronger.

The survey shows that 28 per cent of Mena businesses have three deals on hand, up from 9 per cent 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,” said Menon.

“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 per cent) of Mena executives see this staying the same through the year. This should support more deal closures in coming months.”

Within Mena, small-to mid-market deals, below $250 million, will continue to figure prominently in executives' plans, particularly among the dominant family-owned businesses. The survey shows that 88 per cent of Mena executives will look for deals in the lower middle market, up from 77 per cent 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,” Gandier said.

“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. Continued government spending and a calming of regional tensions will provide further impetus for M&A in the region,” he concluded. – TradeArabia News Service