2011 MENA M&A deal volumes up by 4%; values decrease by 28%

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· Number of deals rose marginally from 401 in 2010 to 416 in 2011

· Total deal value decreased from $44.1bn in 2010 to $31.7bn in 2011

· Q4 2011 experienced a considerable increase in total deal value compared to the third quarter, rising from US$4.4bn in Q3 2011 to US$7.2bn in Q4 2011, a jump of 64%

Total Mergers & Acquisitions (M&A) deal volumes in the Middle East and North Africa (MENA) region registered a rise of 4% last year, from 401 in 2010 to 416 in 2011, according to Ernst & Young’s 2011 year-end MENA M&A update. Deal values on the other hand fell by 28%, from US$44.1bn in 2010 to US$31.7bn in 2011.

The first half of 2011 experienced a higher average value of M&A deals at approximately US$10bn as compared to the second half, which showed an average value of approximately US$6bn. Fourth quarter activity in 2011 experienced a considerable increase in total deal value compared to the third quarter, rising from US$4.4bn in Q3 2011 to US$7.2bn in Q4 2011, a jump of 64%.

Phil Gandier, MENA Head of Transaction Advisory Services, Ernst & Young, said in Dubai: “A larger number of deals at smaller valuations signifies that asset values across the region have taken a tumble in light of the lower regional economic growth and also the projections for future growth. One of the key obstacles slowing deal closures has been the continuation of the valuations gap between buyers and sellers. Once this discrepancy begins to narrow, we may begin to see deal closures picking up some pace. Sellers have acknowledged that future cash flows from their business stakes will not be as strong as they had hoped for and are now in the process of re-evaluating their options. These numbers indicate that 2012 will be favorable to buyers if they can add substantial value.”

UAE and Saudi Arabia remain most active

The countries that saw the largest number of transactions in the domestic space in 2011 were the UAE (49 deals) and Saudi Arabia (44 deals).

In terms of deal value, countries that ranked highest were the UAE, comprising 40% (US $3.9bn) of total disclosed deal value in the domestic space in 2011; Saudi Arabia followed at 29% (US$2.8bn) and Kuwait at 11% (US $1.1bn).

Outbound deals beat inbound deals in terms of value in 2011

In terms of volume, domestic transactions outnumbered inbound and outbound deal activity, comprising about 54% of total announced deals in 2011. In terms of value, however, outbound deal activity held the greatest value among total announced deals, comprising US$16.3bn, or 51% of total announced deal value in 2011.

By volume, outbound transactions came second after domestic deals in terms of dominance in M&A market activity, comprising 104 deals, or 25% of the total deal volume. Inbound deals, comparatively, held the lowest volume and value among total announced deals, comprising 88 deals, or 21% of total announced deal volume, and US$5.6bn or 18% of total announced deal value in 2011.

Phil comments: “A drop in inbound deals directly correlates with the decreasing levels of FDI that the region is able to attract from global investors and institutions. This was to a large extent driven by the uncertainty caused by the changes in the region – especially in 2011. However, we expect this scenario to improve in 2012, especially in the latter half as global investors return to the region to increase their emerging market exposure.”

Diversified Industrial Products, Real Estate and Oil & Gas most active sectors

Sectors that attracted the most domestic M&A activity in 2011 in terms of volume included Diversified Industrial Products (37 deals worth approximately US$680mn) and Real Estate (28 deals worth US3.6bn).

Similarly, in the inbound M&A space, the sector with the greatest deal activity in 2011 was Diversified Industrial Products (21 deals worth US$1.3bn). This was followed by Oil & Gas (12 deals worth approximately US$1.3bn).

In the outbound space, the sector with not only the greatest volume but also value was Oil & Gas (with 13 deals worth approximately US$9bn). In second and third place and with relatively low deal values came Consumer Products (11 deals worth US$31mn) and Diversified Industrial Products (10 deals worth US$156mn).

SWF/PE Activity in the region

Of the 416 deals announced in the MENA region in 2011, 46 deals were in the SWF/PE space, or 11% of all announced deals. Half of such deals were in the domestic space, closely followed by outbound deals at 43%, and inbound deals at 7%.

“SWF/ PE exits can greatly increase FDI inflow into the region, but most exits have been delayed due to economic pressures and other business eroding issues. However, PEs and other large investors are looking at trade sales seriously because of defined fund durations and as a result we expect to see an increase in exits in 2012,” concluded Phil.

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