The mergers and acquisitions activities in the Arab region, which have been severely hit by the global financial meltdown and stock market collapse, is set to recover only in 2011 and beyond, said an industry expert.

Dr Karim El Solh, chief executive officer of Gulf Capital, a leading regional Alternative Asset Management Company based in the UAE, said although $188 billion worth deals were transacted between 2005 and 2009, there has been a considerable drop this year, to almost a virtual standstill.

'This is not expected to change in 2010. Private equity companies will probably be the most active players in M&A in 2010,' Dr El Solh said on Tuesday while speaking at the 'Mergers & Acquisitions 2009' conference organised by Meed in Abu Dhabi.

'However, looking forward, the pipeline of deals in the Mena region remains long and healthy and longer-term, i.e. in 2011 and beyond, the sector will re-emerge assisted by the dry powder from private equity players and by the need for consolidation, he pointed out.

“Deal activity has dived down recently, with estimates reflecting a decrease of around 80 per cent during the past five quarters. In fact, the collapsing stock markets, the disappearance of acquisition finance and corporate retrenchment have led to a virtual halt in M&A deal activities in the Mena region,” he stated.

Revealing results of a research into M&A activities between 2005 and 2009 conducted by Gulf Capital, Dr El Solh said that the deal size also shrank as leverage started disappearing, and there was a major drop in deal volume due to the economic crisis and lack of access to acquisition finance.

The average deal size decreased by over 60 per cent from its peak of 305 million in 2007 year. Most of the deals which were closed in 2009 were 100 per cent equity financed, hence the smaller size of these deals.

Geographically, during the 2005-2009 period, the M&A activity in the Arab World has been mainly concentrated in the GCC region and Egypt with more than 80 per cent of the estimated deal volume. Based on gathered data, Egypt attracted a lot of cross-border FDI at 40 per cent of the total 2055 deals, followed by the UAE at 18 per cent. The GCC countries witnessed the largest deals.

Dr El Solh told the M&A conference attendees that the sectors that attracted most of the investments were financial, telecom, real estate and construction sectors, which accounted for the majority of the deal values.

More than 70 per cent of the total $188 billion invested in the Arab World during this period went to these four sectors, he added.

“Banks and telecom licences are big ticket acquisitions and naturally attract the lion share of these deals. Naturally, there is significant variation in transaction sizes between sectors,” he explained.

According to the research findings, acquisitions accounted for 48 per cent of the M&A deal value at $90 billion, with minority investments consisting of a substantial 44 per cent of the total, or $80 billion. “Buy-outs formed the smallest share at a mere $4 billion of the total,” explained the CEO of the leading private equity firm.

According to Dr El Solh, most of the M&A activities in the region in 2010 will be led by PE firms and will be focusing on five sectors; financial, telecom, healthcare, education and food. 'Private equity players, with more than $11 billion in dry powder, will be more active acquirers in the next few years,' he observed.

He said that 2010 will see continuous merger of global and regional players in the telecom sector. “Markets are becoming mature, and M&A is the only way to grow,” he added.-TradeArabia News Service