Mergers and acquisition (M&A) activity in the Middle East and North Africa (MENA) region declined in the first quarter (Q1) of 2017, recording 84 deals compared to 115 deals in Q1 of 2016, global professional services firm EY said in its Q1 2017 M&A report. However, MENA deal values remained broadly stable reaching $18.2b in Q1 of 2017, compared to $18.4b in Q1 2016. The outbound announced deal value increased substantially by 636% from $1.3b in Q1 2016 to $9.3b in Q1 2017. Furthermore, the announced inbound deal value also rose exponentially from $0.5b in Q1 2016 to $5.7b in Q1 2017. On the contrary, the announced deal activity value for domestic transactions witnessed a significant decrease of 81% in Q1 2017 compared with Q1 2016. Within the MENA region, the overall top ten deals contributed over 90% to the total deal value registered in the period. Phil Gandier, MENA Transaction Advisory Services Leader, EY, said: "As oil prices continue to stabilize, and Government initiatives foster greater economic certainty, MENA executives are feeling more optimistic that the economic conditions are right to return to deal making. Consequently the M&A pipeline has never been better - both quality and quantity. Furthermore, we expect the recent reversal of certain austerity measures in the GCC to result in more confidence in deal making." In the region, Saudi Aramco's acquisition of a 50% stake in Malaysian state-owned energy company Petronas' RAPID project for $7b was the largest deal of the quarter. The biggest technology deal of the quarter was the acquisition of Souq.com by Amazon for approximately $650m. Amazon's acquisition of Souq marks the company's first move into serving the Middle East region. MENA executives expect deal activity to increase Executives in the region are feeling more positive about the global economy, with 47% expecting deal activity to increase in the next 12 months, according to the latest EY Capital Confidence Barometer (CCB). Furthermore, 41% indicate they have five or more deals in the pipeline, with 54% of MENA companies looking to close deals over the next year. However, MENA executives expect a slowdown in global trade flows and an increase in protectionism, high fluctuation in currencies and capital markets, and increasing geopolitical uncertainty as significant economic risks. Market fluctuation and lower oil prices have 54% of MENA executives looking at organic opportunities first to meet growth objectives. Anil Menon, MENA M&A and Equity Capital Markets Leader, said: "MENA executives consider growing market share as the main strategic driver for pursuing an acquisition. 24% of the CCB respondents place the greatest attention and resources on organic growth as one of the largest capital management issues. Given the new taxes that the Gulf countries will impose, and the difficulty in bringing skilled labor into the country, many companies are turning to automation. They are not looking to reduce their workforce — 16% expect to maintain the current workforce domestically; 20% anticipate doing the same internationally." The most interesting aspect of the current deal environment is the emergence of the strategic buyer. Whether it›s the Tronox Cristal deal, or the Amazon Souq deal, Strategic Buyers, in particular international strategics, doing deals is a strong vote of confidence in the entire M&A ecosystem." Public sector companies and governments are looking at significantly restructuring their portfolio mix as they look to invest in areas beyond healthcare and education. Among MENA countries, the UAE's public finance appears to be faring best. Real estate in particular is flourishing when compared to countries in the region as the UAE prepares for Expo 2020 and beyond. Of the CCB respondents surveyed, 66% have increased the frequency of their portfolio review process to capitalize on disruptive forces. "Improving economic conditions are a contributing factor to the positive outlook of MENA executives. In the public sector, MENA countries are on track in terms of improved GDP growth in 2017. The pipelines remain robust and companies are feeling good about the quality of the deals in the market. We expect to see a significant uptick in deal activity over the next 12 months," Gandier noted. IPO activity in the region picked up in Q1 2017 with the region raising nine IPOs as compared to two in Q1 2016. However, the capital raised declined by 39% from $0.6b in Q1 2016 to $0.4b in Q1 2017. In the private equity space, 13 Sovereign Wealth Funds and Private Equity deals were announced in Q1 2017, with January having the most activity of six deals. Executives in the region are feeling more positive about the global economy, with 47 percent expecting deal activity to increase in the next 12 months, according to the latest EY Capital Confidence Barometer (CCB). Furthermore, 41 percent indicate they have five or more deals in the pipeline, with 54 per cent of Mena companies looking to close deals over the next year. However, MENA executives expect a slowdown in global trade flows and an increase in protectionism, high fluctuation in currencies and capital markets, and increasing geopolitical uncertainty as significant economic risks. Market fluctuation and lower oil prices have 54 percent of MENA executives looking at organic opportunities first to meet growth objectives. — SG
