3 minute read 21 Nov 2018
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MENA executives cautious on M&A

Middle East and North Africa (MENA) companies are treading cautiously in M&A due to modest revenue growth and regional market uncertainties.

This article is part of our M&A report Global Capital Confidence Barometer, 2nd half 2018.

In our latest Capital Confidence Barometer, we find that companies in the Middle East and North Africa (MENA) are following a cautious approach to mergers and acquisitions due to a modest growth in revenues and a drop in liquidity position, driven largely by ongoing regional market uncertainties.

One-third (33%) of MENA companies expect to pursue M&A in the next 12 months, a 32-percentage-point drop from a year ago. The outlier in the region is Egypt. Although intentions are well below where they were this time last year, Egypt has rebounded significantly, to 37% of companies planning a transaction from a low of 23% six months ago.

M&A expectations

33%

of MENA companies expect to pursue M&A in the next 12 months.

Maintaining market share was a key driver behind dealmaking

While some companies are pressing pause on M&A activity amid a period of ongoing uncertainty, others are continuing to move forward. Interestingly, 35% of MENA respondents see M&A as a necessity for growth, to maintain market share and enhance long-term competitive advantage. For a quarter of MENA executives surveyed, acquiring capabilities in certain industry domains has become their primary strategic focus. Portfolio diversification and entry into new markets is a strategic priority for 22% of MENA executives.

Portfolio optimization remains a corporate imperative

Portfolio optimization and preserving capital has become a corporate imperative. 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. Seventy-one percent have identified underperforming assets and non-core assets to divest.

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 (KSA) and Egypt, executives are paying more attention to digital transformation.

Strategic buyers to drive M&A in 2019

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 is expected to be robust given the strong deal pipelines and the government(s) mandate to pursue diversification as a strategy. 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.

Summary

As 2019 approaches, sector consolidation and emergence of cross-border dealmaking are expected to continue. Private equity will remain net sellers, providing strategic buyers a unique opportunity to cherry-pick high-quality assets in a predominantly buyer’s market. Download the full report (pdf).

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