JEDDAH — In the third quarter of 2017, a total of 76 deals were announced, a decrease of 10% when compared to the 84 deals in Q3 of 2016., according to EY Q3 2017 M&A report.
MENA M&A deal value, however, increased by 23% to $4.3 billion, up from $3.5 billion in Q3 2016, the report said.
Saudi Arabia ranked the highest among the MENA countries by value in Q3 2017 with five deals amounting to $1.6 billion. Kuwait followed with five deals valued at $914.8 million, and the UAE with 21 deals amounting to $547.4 million.
Of the 76 MENA deals in Q3 2017, banking and capital markets was the top-performing sector by deal value reaching $1.5 billion, followed by the telecom sector with a total deal value of $847 million.
Phil Gandier, MENA Transaction Advisory Services Leader, EY, said: “MENA executives continue to remain confident about the M&A market. According to the latest EY Capital Confidence Barometer, a record 65% of respondents indicated their intention to actively pursue deals in the next 12 months. With the recent oil prices, a slow-growth environment and the diversification agendas of many MENA countries still more in the planning than execution stages, MENA executives understand that they need to ‘buy’ versus ‘build’ to remain competitive.”
Domestic M&A saw the largest y-o-y improvement, increasing by 17% in number and 343% in value. Furthermore, the average size of domestic deals rose by 258% compared to Q3 2016. However, inbound and outbound deals did not fare as well, decreasing by 21% and 26%, respectively compared to Q3 2016.
The largest deal announced in Q3 2017 (pending regulatory approvals and completion) was the acquisition of a minority stake in Banque Saudi Fransi for $1.5 billion by Kingdom Holding Company (KHC).
Digital advancements drive deal-making
MENA executives are feeling pressure as current business models undergo change, with nearly one-third citing the impact of digital technology and transformation as the primary force propelling changing customer behaviors and heightening threats from digitally enabled competitors and start-ups.
Anil Menon, MENA M&A and Equity Capital Markets Leader, said: “To some extent we are in uncharted territory with strategic acquirers viewing this as the best time to make long term bets and sellers grappling with pricing-in policy ambiguity and volatile geopolitics. With MENA private equity turning net sellers, we expect the valuation gap to decrease.”
According to the CCB survey, MENA corporate and capital market indicators are looking positive; 63% of MENA executives expressed favorable sentiments towards corporate earnings (up from 18% a year ago) and 53% feel more optimistic about credit availability.
“As we look ahead, M&A will remain a vital component of MENA companies’ growth strategy in the foreseeable future, as they continue to take advantage of low interest rates and low growth environment to secure an enduring competitive edge,” Gandier added.
“EMEIA (Europe, Middle East, India, and Africa) remains the second-most active IPO market globally,
showing consistent year-on-year growth. In what is traditionally a quiet quarter, we saw Switzerland, South Africa and Poland all with
record-breaking deals. Reflecting rising confidence across the region, IPO candidates from India and the Gulf States are also lining up to take their turn before the end of the year. With soaring equity indices in many markets, lower volatility and positive investor sentiment, the last quarter is set to be the busiest one for IPOs,” said Dr. Martin Steinbach, EY Global and EMEIA IPO Leader.
EMEIA exchanges can expect a strong end to 2017, with positive momentum fueled by solid economic fundamentals.
Countries in the Gulf Cooperation Council (GCC) will also see a number of IPOs in Q4 2017 and into 2018, from both state-owned and private sector companies looking to capitalize on efforts within the region to make stock exchanges more liquid.
Strong pipelines are building in many markets in spite of investor concerns that a strengthening euro may curtail the earnings recovery in Europe.
The European markets are proving resilient in the face of the forthcoming Brexit negotiations. Investors remain selective but European IPO activity should be relatively strong going into the last quarter of the year.
UK IPO activity is likely to remain slow until the end of the year, by which time prospective IPO candidates anticipate that political instability may have abated. However, the pipeline is looking strong for the Alternative Investment Market (AIM) and smaller London Main Market listings. Moreover, London continues to attract cross-border IPOs, which is a sign of confidence.
IPO activity in India is headed for a record year in 2017 as an increased number of issuers aim to take advantage of a rally in the stock market and increased investor demand. The re-emergence of larger listings in the pipeline could help India reach the expected target of US$5b in proceeds for 2017. There has been particularly strong activity in the insurance sector due to regulatory changes and a number of major insurance companies are ready to IPO. The Indian Government also plans to list four of its public defense units.
IPO activity in Africa is likely to remain subdued for the rest of 2017. This is largely due to political and economic instability in key markets across the continent, such as South Africa, Kenya and Nigeria. In Tanzania, there could be more IPOs in the coming months due to regulatory changes that now require the listing of local businesses that are foreign-owned.
Q4 2017 and the first half of 2018 should see a number of megadeals across the region, but especially from the Middle East. The average size of recent IPO issuers has declined, suggesting that a higher number of smaller companies are joining the main and junior markets in 2017. IPOs on the main markets have outperformed the main indexes, which reflect positive investor sentiment. — SG
