Q1 MENA M&A activity down by 21.8%; MENA executives make portfolio transformation a priority: EY

Dubai, 6 June 2018

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  • MENA recorded 93 deals amounting to US$15.4b in Q1 2018
  • UAE records highest announced Q1 deal value in the region at US$5.1b
  • Oil & gas deal value reached US$7.2b in Q1 2018
  • Almost 80% of MENA boards focused on portfolio transformation

MENA M&A activity recorded 93 announced deals in Q1 2018, a decline of 21.8% when compared to 119 deals in Q1 of 2017, according to EY’s Q1 2018 M&A report. The total disclosed deal value in MENA also dropped by 26.7% in Q1 2018 to US$15.4b, compared to US$21b in Q1 2017. Of the transactions across the MENA region, the United Arab Emirates saw the highest deal value with US$5.1b from 23 deals announced in the first quarter of this year.

The first quart of 2018 saw inbound deal activity and value increase; however, both deal activity and value declined for outbound and domestic transactions. The announced number of inbound deals was 27 deals, up by 42.1% from the 19 deals announced in Q1 2017. The inbound deal value increased by 138.7% to US$7.4b in Q1 2018, up from US$3.1b in Q1 2017.

The number of outbound deals fell from 41 deals in Q1 2017 to 29 deals in Q1 2018, while outbound deal value fell by 63.8%. The MENA region also saw a decline in domestic deals as they fell from 59 announced deals in Q1 2017 to 37 deals in Q1 2018, with domestic deal value falling by 28.2%.

Phil Gandier, MENA Transaction Advisory Services Leader, EY, says:

“Confidence in the economy remains strong, though MENA companies are taking a pause as rising inflation, market volatility, and high deal valuations have businesses looking to preserve capital rather than deploy it in the short term. In particular, companies in Saudi Arabia and Egypt are taking a wait-and-see approach. Last year, UAE companies dominated both inbound and outbound M&A activity and we expect the UAE to continue driving MENA deals in 2018.”

Oil and gas leads in deal value

The sector with the highest deal value in Q1 2018 was oil and gas with an amount reaching US$7.2b. The chemicals sector followed with a deal value of US$2.5b and the insurance sector had the third highest deal value at US$1.2b. Rounding out the top five sectors by deal value in the first quarter of 2018 were provider care and technology, both with deal values of US$1b.

“Although deal volume has been modest in the first quarter of 2018, deal values relating to acquisition capital deployed in MENA in Q1 2018 have reached their highest levels since 2001, with US$10.2b invested in the region. The insurance, medical and education sectors have seen the highest allocation of acquisition capital,” adds Phil.

Portfolio transformation becomes a boardroom priority

Executives in the region are feeling optimistic about the MENA economy, with 98% saying they see it as improving or stable, according to the latest EY Capital Confidence Barometer (CCB). Furthermore, 73% of respondents expect the local M&A market to improve this year, with 37% of executives actively pursuing mergers and acquisitions over the twelve months.

Almost 80% of MENA boards are focusing on portfolio transformation over the next six months in an effort to become more agile and responsive to market volatility and better prepare their organizations for the future.

Anil Menon, MENA M&A and Equity Capital Markets Leader, EY, says:

“MENA executives see portfolio transformation as a means to further strengthen their companies to achieve long-term competitive advantage. While the majority of executives conduct portfolio reviews annually, an increasing number are undertaking reviews on a more continuous basis. More than a quarter of CCB respondents say that they are reviewing their portfolios more frequently than three years ago, largely because of threats to their business from digitally-enabled competitors and start-ups, as well as the impact of digital technology on their business models. Saudi Arabia especially has been active in stepping up its portfolio reviews in recent years.”

Overall, more stable geopolitics and favorable macro-economic situations have MENA executives anticipating more deal completions this year, compared to the 78% of executives that either failed to complete or cancelled an acquisition last year.

“We can expect to see cross-border deal making to be an important theme over the next 12 months as companies look to reallocate capital outside of the region in pursuit of strategic opportunities,” concludes Anil.

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About the Capital Confidence Barometer
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook, and identifies boardroom trends and practices in the way companies manage their capital agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Euromoney Institutional Investor Thought Leadership (EIITL). The panel comprises select global EY clients and contacts and regular EIITL contributors.

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