April 2014

Middle East and North Africa

Capital Confidence Barometer

Pursuing value in growth

Key findings

M&A: Transaction outlook improves as valuation gap narrows

Economic outlook: Economic prospects rebound amid improved political stability

Access to capital: Credit availability is stable as cash dominates deal finance

Growth strategies: Cost reduction challenges growth in boardroom agenda

EY - Capital Confidence Barometer
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Our latest Middle East and North Africa (MENA) Capital Confidence Barometer sees a number of indicators supportive to the transaction environment. A strong growth outlook, combined with easy credit access and robust earnings expectations looks likely to encourage companies to pursue acquisitions primarily in emerging markets, as well as in mature economies.

As a blend of frontier and emerging markets, MENA countries possess a number of unique advantages. Cash levels in MENA businesses continue to remain high; this coupled with a diminishing valuation gap between buyers and sellers could lead to more deal closures over the coming months.

Key findings

74% see improvement in the local MENA economies
78% have confidence in corporate earnings — a significant improvement from six months ago (57%)
69% say they will finance deals primarily with cash in the next 12 months
54% anticipate increased job creation in their organization
75% expect local M&A deal volumes to increase over the next 12 months
33% expect to pursue acquisitions over the next year
41% see either no valuation gap between buyers and sellers or a gap of less than 10%

Additionally, many MENA companies have promising deal pipelines which could be a catalyst for more transaction activities.

Encouraged by strong business and economic confidence locally, plus an increase in corporate earnings expectations, the outlook for MENA deal volumes remains optimistic.

When it comes to the propensity of MENA companies to engage in M&A, there are more significant disparities across individual sectors than in the global sample. Companies in the automotive, life sciences and mining and metals industries report the highest appetite to acquire, while those in the oil and gas and power and utilities industries with a lower acquisition appetite. Despite the deep liquidity that MENA has to offer an element of caution remains amongst the backdrop of continued global and regional political instability.

—Phil Gandier, Transaction Advisory Services Leader, Middle East and North Africa