| Beirut (RPN) - Companies in the Middle East and | | | | be state influenced or oligopolistic in others. |
| North Africa have recently announced nine new | | | | Growth of private sector consolidation in MENA |
| merger and acquisition (M&A) plans that could | | | | through M&As can be expected to hold true |
| be worth $11.4 billion. The largest new M&A | | | | even as the largest deal cancelation was very |
| transaction under debate is a sale of | | | | recent when the $1.7 billion fire sale of Dubai |
| telecommunications assets by Egypt's Orascom | | | | construction leader Arabtec to Abu Dhabi's Aabar |
| Telecom Holdings to South African MTN. Other | | | | Investments was called off in mid April. |
| new major M&A deal announcements involve | | | | The two companies said the cancelation was in |
| companies in health care and steel making. | | | | mutual agreement but the suddenness and dearth |
| The new projects, announced between April 16 | | | | of information involved in cancellation of their |
| and April 30, have pushed the known portfolio of | | | | merger intentions was no less disturbing than the |
| major business partnership deals – acquisitions, | | | | smoke screens that had been put up before the |
| mergers, joint ventures, venture capital | | | | firms released their original bombshell transaction |
| participations, strategic and financial investments | | | | announcements on the UAE equity markets in |
| – to more than 800 deals with aggregate | | | | January of this year. |
| value of $141.5 billion. | | | | M&A trends are also hard to assess on |
| According to the RPN Dealflow Monitor, a new | | | | sector levels as decisions are propelled by a wide |
| service by information refiner Regional Press | | | | variety of considerations, from financial to |
| Network, telecommunications transactions | | | | strategic but also including political reasons, |
| represent the largest slice in the pie at $32.3 billion, | | | | unpredictable motives, non-economic rationales, or |
| followed by deals in financial services, at $25.6 | | | | having singular characteristics. |
| billion. Oil and gas investments rank third, with a | | | | The largest transaction on record in the past 16 |
| value of $19.9 billion. | | | | months was in fact concluded with a definite sales |
| Combined, the three sectors account for 60% of | | | | agreement in March when India's Bharti Airtel |
| deals reported by the monitor which tracks | | | | acquired mobile communications network assets |
| announced, ongoing, completed and cancelled deals | | | | from Kuwait's Zain Group in a $10.7 billion deal. |
| and covers the period from January 2009 until | | | | This deal was atypical not only because of its size |
| today. | | | | which accounted for 48% of all telecom deals |
| Consumer goods (not including food and | | | | recorded between Jan 2009 and end of March |
| beverages), miscellaneous services, and leisure | | | | 2010. |
| were the least active sectors, accounting | | | | It also was a case of extra-regional assets being |
| together for $180 million worth of known deals. | | | | sold to a foreign strategic acquirer by a MENA |
| M&A flowOf the total $141.5 billion valuation | | | | company which effectively relinquished its |
| total of deals where valuation estimates or firm | | | | strategic interest in an overseas market. As such, |
| transaction values are available, 45% are | | | | consolidation in regional terms was not a factor in |
| M&A deals where one entity acquired a | | | | the Zain-Bharti transaction. |
| controlling interest in another entity or where two | | | | Inbound, outboundDeals with extra-regional |
| companies merged into a new one. | | | | participants targeting regional assets, however, |
| Transparency of the merger and investments | | | | play a growing role, as do consolidation moves on |
| activity in private sectors across MENA is still in its | | | | regional level. |
| infancy and the data contain a number of blind | | | | One in every four merger and acquisition deals of |
| spots – such as a two-of-three ratio where | | | | just over 200 deals tracked by RPN Dealflow |
| deal valuations have not been provided. For many | | | | between January 1 and April 15, 2010 involved a |
| other transactions, value estimates are preliminary | | | | partner outside of the MENA region (inclusive of |
| and are yet to be confirmed. | | | | Turkey) but most of these deals related to |
| The strength of the available data is supported by | | | | assets located within MENA. |
| the fact that the vast majority of deals in the list | | | | Compared with the same period a year ago, the |
| have been completed. | | | | three-and-a-half months in 2010 showed a |
| Pending and rumored deals account for 22.5% and | | | | moderate increase in the number of deals by |
| about 6%, respectively. Only three deals in the | | | | about 3%. |
| database carried the stamp "canceled". | | | | But when analyzing the location of acquisition |
| This ratio of canceled deals is low when noting | | | | targets further, the number of deals involving |
| that mergers and acquisitions are known to carry | | | | target countries in the GCC, Levant, and North |
| downside risks. From lessons in developed | | | | Africa's Mediterranean rim increased y-o-y quite a |
| markets, M&A risks have been identified as | | | | bit more in 2010, by 25.5% -- given that deals |
| empire building hubris, incompatibility of cultures, | | | | involving Turkish stakeholders, which almost |
| overestimation of synergies or cost savings and | | | | entirely were domestic in 2009 and 2010, were |
| underassessment of new cost factors or | | | | fewer this year. |
| changing market situations. | | | | Analysts say that outbound M&A activities |
| On the other hand, reluctance to divulge merger | | | | by cash-heavy Arab Sovereign Wealth Funds and |
| plans and investment and partnership projects in | | | | private wealth aggregators will proceed with more |
| the Middle East and North Africa is a challenge not | | | | scrutiny and inbound flows will witness to the |
| only for data collection in serving investment | | | | increasing appetite of international players for |
| professionals but also for the region's corporate | | | | slices of MENA economic activities. |
| and government decision makers. | | | | Dynamics of M&A in one sector often get a |
| Deal or no dealAnalysts and pundits have been | | | | stimulus from a major deal closing, as |
| saying of late that they expect 2010 to see an | | | | demonstrated when Zain's telecommunications |
| increase in investment deal making after 2009 | | | | sale to Bharti was quickly followed by MTN and |
| had been under the weather due to the stormy | | | | Orascom disclosing that they entered discussions |
| economic conditions. | | | | for an MTN takeover of Orascom's Algerian unit, |
| Areas where pundits say they expect | | | | Djezzy. |
| concentration of deals include telecommunications, | | | | MENA-only deals entailed both mergers among |
| real estate, and financial services. However, | | | | majority state-owned corporations and private |
| predictions on bank consolidations have been | | | | sector action. However, looking at talked-about |
| proven wrong in the past and the current | | | | consolidation of certain already market-dominant |
| outlooks are often tainted by the need to bet on | | | | real estate or housing finance companies in some |
| deal potentials rather than being able to assess | | | | countries, it appears that consolidation of |
| realistic prospects with a high degree of | | | | state-backed enterprises follows rationales that do |
| confidence. | | | | not prioritize avoidance of monopolistic capacity |
| On the upside, M&A transactions reside next | | | | concentrations. Some of the private sector |
| to initial public offerings and general company | | | | mergers on the other hand will predictably be |
| formations among the potent means in enhancing | | | | called off or fail, as M&A invariably include a |
| productivity in an economy. They are a key tool | | | | share of flops. |
| of corporate investment activity and a measure | | | | On the whole, the growth of M&A can still |
| of a market's maturity. | | | | be expected to be more multilateral and diverse |
| In fragmented markets, merger theory sees the | | | | than in the past and include increased deals with |
| potential of forging stronger, healthier businesses | | | | foreign investors as well as intra-regional and |
| that can better withstand economic downturns as | | | | emerging markets partnerships where in the past |
| long as concentration of market power is kept in | | | | much of regional M&A capital was directed |
| check by antitrust regulations. | | | | toward high-value assets in developed economies |
| Arab market economies are traditionally highly | | | | and inbound international capital focused on oil |
| fragmented in some sectors and have tended to | | | | exploration and refining joint ventures. |