UAE- Headwinds not swaying the importance of MAs

(MENAFN- Khaleej Times) Mergers and acquisitions activity will continue to support the global economy in 2016 as it faces significant headwinds from slowing economic growth in China lower oil prices regional instability and the panoply of issues facing the eurozone says an expert.

Will Seivewright corporate partner at Baker & McKenzie Habib Al Mulla UAE said the first half of 2016 has started well and some good M&As are expected this year.

"We continue to see a good pipeline of M&A transactions in 2016. Food and beverages which includes FMCG [fast-moving consumer goods] food manufacturing and franchise restaurants continues to be the most active sector for us as a firm followed by insurance healthcare and industrial/manufacturing. We have a very strong retail and luxury brand practice which is also witnessing high levels of transaction activity" he told Khaleej Times in an interview.

Founded in 1949 Baker & McKenzie advises many of the world's most dynamic and successful business organisations through more than 11000 people in 77 offices in 47 countries. It has been active in the Middle East and Africa for over 30 years.

Seivewright said 2015 was remarkable for M&A in the Middle East despite a backdrop of political and economic change as the firm has seen record-breaking cross-border deals by value in the Middle East. Elaborating the key drivers behind upward trend in M&As he said numerous factors are driving deal activity in the region:

. The mega mergers of 2015 are throwing off deals as they reshape acquired businesses or divest of non-core businesses.

. The currency appreciation across a variety of regions has bolstered companies to fund acquisitions.

. Poor-performing stock markets are driving interest in public company transactions in the Middle East.

. International private equity is still looking closely at the region as a whole although often struggling to overcome local legal and regulatory issues.

. Family businesses and local corporates are waking up to the benefits of financial investors who may bring more than just capital; they can also provide access to other markets expertise and governance.

. Reductions in liquidity are starting to impact SMEs increasing the likelihood of distressed deal activity.

. Regional demographics continue to support valuations and activity in consumer-focused industries.

. Consumer confidence is slowing but this is not yet reflected in asset valuations.

To a question he said the United States stayed on top for both inbound and outbound transactions in terms of value and volume last year. The world's top economy registered 39 deals valued at $3.21 billion for driving investment into the region while for outbound transactions it recorded 21 deals valued at $44.73 billion.

About the Middle East's leading industry on inbound deals in 2015 he said technology was the top target industry in the Middle East by both volume and value with 30 deals exceeding $2.7 billion in value. "Within the technology sector over 76 per cent of deals were specifically linked to computer software which accounted for over $2 billion."

M&As in 2016

Looking ahead to the rest of 2016 and beyond Seivewright said liberalising regulatory efforts especially in countries like Saudi Arabia and the UAE should incentivise deal-making and support cross-border activity.

"Notwithstanding low oil prices and macroeconomic uncertainty we expect our clients to be opportunistic particularly in relation to cross-border deals and for continued deal activity in the UAE and Saudi Arabia" he said.

To a question he said the UAE and Saudi Arabia rank within the top 10 countries globally in the company's "transaction attractiveness" index which charts 10 key economic financial and regulatory drivers of doing M&A deals.

"Our expectations were for 2016 to experience robust activity levels albeit not at the levels experienced in 2015. This is consistent with the activity levels we now are experiencing" he said.

Global cross-border deals

Referring to the company's Cross-Border M&A Index report for 2015 to describe global leading sectors on cross-border deals Seivewright said technology media and telecoms sector led by volume with 209 cross-border deals globally last year. However the healthcare and consumer sectors were in a class of their own by value with $219.2 billion and $152.8 billion in deals respectively.

"In our latest Index reporting on first quarter of 2016 activity the industrials sector led by volume with 194 cross-border deals globally and the healthcare sector led by value with 92 deals worth $54 billion" he said.

He said total 17 cross-regional deals valued at $2.5 billion targeted in the Middle East during first quarter of 2016. "For first quarter of 2016 the top countries by value driving investment into the region were Switzerland the United States and China with acquisitions valued at $837 million $602 million and $301 million respectively. The US remained the top bidder country by volume with seven deals followed by the UK and France" he said.

Mideast M&As in Q1

Seivewright said the consumer (food) sector led by value and the computer software sector led by volume for inbound Middle East mergers and acquisitions in the first quarter of 2016. The $292 million acquisition of Souq.com was the highest-valued cross-regional deal targeting the UAE.

"The first quarter of 2016 saw outbound Middle East M&A achieve 23 deals valued at $1.09 billion with the UAE driving four out of the top five outbound deals. The top sector for regional outbound M&A by value was the services sector with four deals valued at $364 million while the leisure sector led by volume with five deals valued at $298 million" he said.

To a question about any challenges facing M&As this year he said both challenges and opportunities will exist in today's competitive economic scenario.

"Yes many but also many opportunities. Regional instability reduced liquidity and low oil prices are the biggest challenges facing M&A activity in 2016. That said our clients are telling us that the same uncertainty provides opportunistic M&A activity" Seivewright concluded.

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