Story Highlights:
•Current economic conditions have created increased M&A opportunities in the region
•Real Estate and infrastructure-related businesses likely to see more activity
•Buy-side opportunities at fire sale valuations will far outnumber Sell-Side transactions
Gotta Love the Current M&A Environment
Yes, we’ve all heard it. Times are improving; people are starting to splurge more and your close analyst friend at even that mid-market investment bank is getting deals done in the M&A, Equity and Debt space (even if it’s only Joe’s Deli merging with Pamela’s Diner or Sam’s Warehouse IPOing). The excitement in the markets has been corroborated by rising market indices globally, signaling the return of investors to the market. Riding this wave of recent mergers and acquisitions activity in global markets, the Middle East is expected to follow suit as companies target consolidation and seek to broaden their business footprint.
Current economic conditions in the region have lowered entry barriers and cash-rich companies now possess greater opportunities to grow through acquisitions. Increasing talk of M&A and announcements of multi-billion dollar deals have made investors take notice and have caused market rallies and helped stocks.
I’ve always found it extremely interesting how Merger and acquisition waves are an active reality of life under both economic conditions: One, where the growth in the economies is heated and companies are flush with liquidity and second, when the growth in the economies is threatened by recession and companies are starving for liquidity. Either way is a win-win situation for banks with strong M&A advisory businesses.
Some banks seem to have struck the jackpot hard in the Middle East. Take, for instance, Rothschild, a prestigious mid-market boutique (whatever that may mean) which has been named the busiest M&A advisor for the Middle East in league tables set out in a study released by Thomson Reuters last week. They’ve worked on deals worth $15.4 billion so far this year, preceding other “baller bulge bracket banks” like Deutsche Bank AG and Morgan Stanley. I have to admit, they’ve done pretty well for themselves. Despite investment banking activity having fallen to pre-boom year levels in the Middle East, Rothschild has doubled the number of bankers working from Dubai to around 20 in the past year, a strategy that seems to be paying off pretty well.
Likely Sectors for M&A
Activity will be rife in sectors hit hardest with firms now available at low valuations for potential acquirers. The phenomenon we call 'fire sale acquisitions' is expected to be more in play. In the Middle East, real estate and infrastructure-related businesses have been affected in a significant manner and hence will invite potential acquirers in the region who are cash rich. It will also attract foreign acquirers who see a clear value addition in their business by acquiring the distressed regional firms.
According to me, consolidation is also to be expected in the financial sector locally and regionally. It is but obvious that the local market for consolidation in this sector will be driven by enhancing the quality of balance sheets in terms of reserve requirements.
Conclusion
From what I observe, I believe sell side deals for M&A in the Middle East are still expected to remain low as most businesses are not listed and tightly held ownership structures give uninvited acquirers limited to zero access to such companies. Besides, liquidity issues for companies in the West and the Far East make it less attractive for them to pursue active cross-border M&A opportunities.
On the buying side however, a large number of deals are expected to go through in the next two years as the region still holds greater liquidity. The drive is to look for fire sales valuations and regional companies with growth ambitions that are poised to strategically look for assets in the West. My experience over the summer is testimony to this fact. I worked on an M&A pitch to present opportunities in the real estate sector for several clients from the Middle East / Asia Pacific region.
Mergers and acquisitions are, to say the least, big business, even in today's hard times. With commodity prices having rebounded significantly from last year’s lows, all eyes are on the Middle East, where deals are done over hookah and businesses is acquired with informal agreements between two wealthy Sheikhs.
