Mergers and acquisitions activity expected to rise

14 May 2014

Deal value increased to $3.06bn in Q1 2014

A series of mergers and acquisitions is expected to be made in the Middle East throughout 2014, with the first quarter of the year registering deal value growth of 57 per cent compared to the same quarter in 2013.

Deal value targeting companies based in the Middle East increased to $3.06bn in the first quarter of 2014, up from $1.94bn in the fourth quarter of 2013. Three deals, each worth $500m or more, together accounted for 57 per cent of total value, according to a report by Brussels-based Bureau van Dyk.

The largest deal involved Barwa Real Estate selling its 37 per cent stake in Barwa Bank to Qatari Diar Real Estate Investment for $656m, followed by the Omani government privatising Oman Telecommunications Company (Omantel) through the sale of a 19 per cent stake for $579m. The figure includes $250m raised through an initial public offering, which closed at the end of April.

The third largest deal by value was Emirates Central Cooling Systems (Empower) acquiring UAE chilled water supplier Palm Utilities and Palm District Cooling from Istithmar World for $500m.

Despite the improvement, value was down  37 per cent from $4.86bn in Q1 2013 and was 48 per cent lower than the $5.84bn recorded in Q1 2012.

Phil Gandier, Mena head of transaction advisory services at EY, told the Middle Eastern M&A and Private Equity Forum in Dubai earlier in May that there is potential for an increase in transactions.

“Our latest Mena Capital Confidence Barometer sees a number of indicators supportive to the transaction environment; such as a strong growth outlook underpinned by growing levels in Mena business confidence compared to a year ago,” he said.

“This, combined with easy credit access, robust earnings expectations and a strong liquidity position is likely to encourage Mena companies to pursue acquisitions domestically as well as in developed markets throughout the course of the year.”

Deal value in the second quarter of 2014 is expected to rise when UAE operator Etisalat completes its €4.2bn ($5.8bn) acquisition of a 53 per cent stake in Maroc Telecom. The deal, which for a large part will be financed through a €3.2bn syndicated loan signed in April, is expected to be finalised by the end of May. The agreement was one of the largest made in 2013.

As valuations of Middle Eastern companies continue to improve, the first half of 2014 has also seen regional private equity firms exit some of their investments.

In May, Dubai International Capital, the private equity arm of Dubai Holding, agreed to sell Germany-based Mauser Group to New York-based private equity firms Clayton, Dubilier & Rice for around $1.7bn.

That marks a major divestment of a Dubai government-owned asset as the emirate prepares for $78bn in upcoming debt maturities over the coming two years.

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