Qatar- Mena executives plan to pursue M&A in the next 12 months despite COVID-19

(MENAFN- The Peninsula) The Peninsula

Business executives in the Middle East region are generally uncertain and cautious about the economy, their growth prospects, and their appetite to pursue M & A, as per the latest edition of the EY Global Capital Confidence Barometer (CCB). Of the executives surveyed, 77 percent expect the COVID-19 pandemic to have a severe impact on the global economy, while 25 percent think it will have a significant effect on the local economy.

However, some executives remain cautiously optimistic, and there is a general acknowledgement that the impact will vary by region and sector. With airlines and mobility in the region heavily impacted, and global supply chains and production disrupted, Mena respondents of the survey agree that hospitality, automotive, discretionary retail, and transportation will be the sectors most negatively affected by the current crisis.

Overall, half of Mena respondents agree that the pandemic will have a minor impact on profitability and margins.

Matthew Benson, MENA Transaction Advisory Services Leader, EY, said: 'Given the significant disruption caused by the crisis, Mena governments have pursued a range of initiatives to create an environment for businesses to survive through this period and eventually thrive. While regional companies initially felt financially insulated from the pandemic due to most being well-capitalized, the large breadth and duration of the impact has forced a shift in thinking.

A more positive trend emanating from the Mena region is its emphasis on rapid digitization. The survey found that 80 percent of Mena executives say that their company is already undergoing a significant business and technology transformation to meet profitability goals, which presents opportunities in the current market. Additionally, 67 percent and 73 percent of Mena executives, respectively, are re-evaluating or taking steps to change their digital transformation and speed of automation initiatives, in response to the pandemic.

The CCB reports that 92 perccent of Mena executives are considering or making changes to their global supply chain. Mena economies rely on imports, not only for discretionary goods, but also for dayto-day essentials, making them vulnerable to supply chain uncertainties. As a result, GCC governments are also considering a range of options for industries to flourish, from policy interventions, to promotion of local manufacturing, to building local or regional supply chains, to creating digitally networked supply chains that are datadriven and can react to events in real time.

Although overall M & A sentiment has decreased and percentages are lower than the first half of 2019, 62 percent of Mena executives remain optimistic that the global M & A market will improve in the next 12 months. In the immediate term, Mena executives in the region expect a slowdown in conventional M & A activity as companies focus on shoring up liquidity, driving cost efficiencies and, preserving value.

However, the pandemic and lower oil prices are expected to accelerate consolidation across sectors and sale of non-core businesses held by merchant families. Across the region, 54 percent of Mena executives say they plan to actively pursue M & A in the next 12 months, only slightly lower than six months ago. Of the Mena companies surveyed, 45 percent will use M & A to strengthen their resilience and position for recovery through bolt-on acquisitions and 30 percent for transformative deals that could fundamentally reshape their business.

Others that are less well-capitalized may find themselves forced to raise capital though divestments, either through full-enterprise sales processes or sale of minority stakes. Anil Menon, MENA M & A and Equity Capital Markets Leader, EY, said: 'COVID-19 is a great reset that will provide amazing acquisition opportunities. Sovereigns, large merchant families and corporations are aggressively looking at tactical buying opportunities. The established totems of capital allocation will be reexamined as many companies with weak business models curate capital sources and structure to weather the pandemic. We expect consolidation, distress M & A, and accelerated digitization to drive deal volumes.

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