More than 80 per cent of the investment banks expect the downward trend since 2007 to reverse this year, with total merger and acquisition (M&A) activity value to reach $25 billion in the GCC, said a study.

The first GCC M&A Barometer interviewed 27 of the leading international and regional investment banks including Unicorn Investment Bank and Securities and Investment Company in Bahrain.

The survey was conducted by Zawya, the online business and investment platform in the Middle East and M:Communications, the international financial communications agency.

Looking further ahead, a significant proportion of the participants surveyed are bullish on their outlook for next year.

Some of those questioned expect GCC M&A volumes to hit the $100 billion mark next year.

But while they expect this activity to be strong in sectors like healthcare, education and consumer services they do not see much needed consolidation in the financial sector in the near future.

Zawya's head of professional investment division Jean Marc Paufique said that while there was a clear need for economies of scale in the financial sector this was not in the immediate horizon.

'There are a lot of ego problems and political issues in this sector with shareholders in the financial industry possibly over valuing their businesses,' he said.

Historically, GCC M&A has constituted up to 10 per cent of global M&A activity.

To date, this year it has reached only 4 per cent, compared, for example, to Europe's 15 per cent share.

However, led by the $10.7 billion deal between India's Bharti Airtel and Kuwait's Zain for the latter's Africa services, the M&A sector now has an air of cautious optimism as key corporates' first quarter earnings show a return to double digit growth.

The sense is that chief executives are now seeking growth through acquisition strategies.

The GCC M&A Barometer also confirms a number of critical barriers to increased M&A activity in the region including a continuing disconnect between corporates' own growth expectations and those of the market.

Chief executives' egos, management don't want to lose power, and a lack of liquidity as most deals are expected to be financed through a combination of debt and equity are also issues according to the report.

'It does appear that the corner has turned with a large majority of our panel of leading bankers from both international and local firms forecasting a significant increase in M&A activity for 2010 with further acceleration in 2011,' said Paufique.

'There is still a long way to go before we return to the heady days of the mid-decade, but the worst is certainly over with a strong desire of those who are fit and able to take advantage of favourable valuations to get ahead in the consolidation race,' added M:Communications Gulf managing director Nicholas Lunt. – TradeArabia News Service