Announced merger and acquisition (M&A) activity in the Mena region decreased by 13 per cent from 104 deals in the third quarter (Q3) of 2014 to 91 deals in Q3 2015, a report said.

Deal value also declined from $8.5 billion in Q3 2014 to $5.4 billion in Q3 2015, a drop of 37 per cent, highlighted the Q3 Mena M&A Update from EY, a global leader in assurance, tax, transaction and advisory services.

Phil Gandier, Mena Transaction Advisory Services leader, EY, said: “EY’s latest bi-annual Mena Capital Confidence Barometer (CCB) infers quiet confidence in the regional and global economic outlook, despite the continued pressure on oil price through 2015.”

“Optimism about economy prospects in Mena appears to have firmed since April 2015. The CCB survey finds that 18 per cent of Mena respondents believe that the regional economy is on a strong recovery path, up from the 6 per cent who believed so in April 2015.

“There is an underlying sense that executives believe that the hydrocarbon-dependent economies have been able to weather the storm. Governments appear to be committed to key projects, and most have sufficient reserves to run deficits for a few years yet,” he added.

Increased cross-border M&A activity in Mena

Combined outbound and inbound deal activity in Mena showed an increase of 40 per cent from 45 deals in Q3 2014 to 63 in Q3 2015. Domestic announced deal activity on the other hand decreased from 59 deals in Q3 2014 to only 28 deals Q3 2015.

Anil Menon, Mena M&A and IPO leader, EY, said: “It is clear that the recent macro-economic uncertainties and the extended summer and other holidays in the region have had an effect on domestic deal activity in Q3 2015. However, there is compelling evidence that the Mena deal pipeline remains robust; 71 per cent of Mena respondents expected their deal pipeline to increase in the coming year, compared to 56 per cent in April 2015. The most marked improvement was in the UAE, where 70 per cent of respondents saw the deal pipeline improving, compared to 14 per cent in April 2015.”

Chemicals, consumer products and healthcare lead Q3 deals

The main sectors for cross-border deals were chemicals, consumer products and healthcare. The largest M&A transaction in Q3 2015 was in September, where Saudi Arabian Oil Company acquired a 50 per cent stake in Lanxess AG, a synthetic rubber company in Germany, at a value of $1.7 billion.
 
“The CCB survey is a great indicator of sector dynamics. Allocation of capital in the oil and gas sector has clearly moved from upstream to downstream. We expect to see many more petrochemical deals in 2015,” said Menon.  

Egypt’s attractiveness on the rise

Egypt has emerged as an attractive destination for foreign investors over the past year. US food giant Kellogg Company acquired two Egyptian companies in 2015, the biscuit maker Bisco Misr for approximately $150 million in January, followed in September by the $50 million acquisition of Egypt’s leading cereal producer, Mass Food Group. These acquisitions underline a greater readiness among foreign companies to conceive of inorganic growth as the best approach in getting a foothold in an important growth market with favourable demographics.

“Egypt, as a net oil importer, has clearly benefited from the weaker oil prices with a robust 4.2 per cent GDP growth rate in the year to June 2015. That has fed into a sizeable increase in the numbers of Egypt-based respondents who see the local economy as modestly improving, rising from 27 per cent six months ago to 47 per cent in October 2015, according to the CCB survey,” Gandier concluded. – TradeArabia News Service