The value of announced deals with disclosed value in the Mena region increased by 105 per cent to $10.0 billion in the third quarter (Q3) of 2018 from $4.9 billion in Q3 2017 according to the EY Q3 Mena M&A report.

Deal value remained consistent year-on-year; 107 deals were announced in Q3 this year compared with 110 deals in Q3 2017, a decrease of 3 per cent.

The GCC deals represented 79 per cent ($7.9 billion) of the total Mena announced deal value, and 73 per cent of deal volume (78 GCC announced M&A deals).

While announced cross border (inbound and outbound) activity was on par with Q3 2017, deal value increased fivefold, valued at $9 billion in Q3 2018 compared to $1.5 billion in Q3 2017. Outbound deals increased from $1.5 billion in Q3 2017 to $6.4 billion in Q3 2018 and inbound deals grew from $28.6 million to $2.6 billion in Q3 2018.Q3 2018 witnessed significant cross border activity from sovereign wealth funds with deal value of $2.5 billion compared to $0.3 billion in Q3 2017 across sectors.

In contrast, domestic deals dropped from $3.3 billion in Q3 2017 to $1.0 billion in Q3 2018 due to the focus strategic players on cross border transactions. The number of high-ticket deals increased significantly in Q3 2018; eight deals valued at over $500m were announced in Q3 2018, compared to two in Q3 2017, leading to an overall increase in average deal size. This is largely attributable to the increased participation of sovereign wealth funds and significant activity in Oil & Gas and Chemicals sectors in Q3 2018.

The acquisition of Arlanxeo Holding, a chemicals company in the Netherlands, for $1.6 billion by Saudi Aramco was the largest deal of Q3 2018.

Phil Gandier, Mena Transaction Advisory Services leader, EY, said: “Companies in Mena are still following a cautious approach to dealmaking due to a modest growth in revenues and a drop in liquidity position, driven largely by ongoing regional market uncertainties, similar to last year.

While deal values are higher than 2017, the results of the latest EY Capital Confidence Barometer (CCB) show that one-third (33 per cent) of Mena companies expect to pursue M&A in the next 12 months, a 32-percentage-point drop from a year ago. In the coming year we may see subdued deal activity and values.”

The top five target sectors in Mena by deal value were (in order of value): oil & gas ($1.4 billion), chemicals ($0.5 billion), diversified industrial products ($0.3 billion), real estate ($0.3 billion), and consumer products ($0.3 billion).

Prominent Mena players involved in more than two acquisitions during Q3 2018 include: Investcorp, Investment Corporation of Dubai, Public Investment Fund, Amanat Holdings and Dnata.

According to the latest EY CCB, three-quarters of Mena respondents say they are actively reviewing their portfolios every six months or more to capitalize on disruptive forces impacting their businesses. Additionally, 71 per cent have identified underperforming assets and non-core assets to divest.

Anil Menon, Mena M&A and ECM leader, EY, said: “In the first three quarters of 2018, regional M&A activity was largely driven by sector consolidation play led by strategic investors. Portfolio optimization and preserving capital has also become a corporate imperative.

“Executives are also assessing a number of capital allocation strategies to mitigate risks and boost returns. A majority indicate they are zeroing in on improving working capital management and investing in existing operations. Within the Kingdom of Saudi Arabia and Egypt, executives are paying more attention to digital transformation.”

In the private equity space, 24 sovereign wealth fund (SWF) and private equity (PE) deals were announced in Q3 2018, with both July and September witnessing nine deals each.

“As we look ahead to 2019, one of the key themes we see continuing is sector consolidation and emergence of cross-border dealmaking. Strategic acquisitions by regional sovereign wealth funds are expected to be robust given the strong deal pipelines and the government(s) mandate to pursue diversification as a strategy,” said Menon.

“Also, strategic buyers will continue to look for value-chain expansion opportunities. Influenced by regional market conditions, fundraising and dealmaking by private equity is expected to be relatively subdued compared to the previous years. Private equity will remain net sellers, providing strategic buyers a unique opportunity to cherry-pick high-quality assets in a predominantly buyer’s market,” he concluded. – TradeArabia News Service