M&A deals in MENA double to $10 bln in Q3 2018: EY

The value of merger and acquisition (M&A) deals in the MENA region increased by 105 percent year-on-year (YoY) to $10 billion in the third quarter of 2018 from $4.9 billion, consultancy firm EY said in its latest report.

Deal value remained consistent YoY, but volume declined by three percent to 107 deals compared with 110 deals in Q3 2017. The GCC deals represented 79 percent ($7.9 billion) of the total MENA deal value, and 73 percent of deal volume.

State-run Saudi Aramco's $1.6 billion acquisition of Netherlands-based chemicals company Arlanxeo Holding was the largest deal of Q3 2018, the report said.

Meanwhile, cross-border (inbound and outbound) activity remained on par with Q3 2017, with deal value rising fivefold to $9 billion in Q3 2018 compared to $1.5 billion in the previous year. 

Significant cross-border activity was witnessed from sovereign wealth funds, with deal value reaching $2.5 billion compared to $300 million in Q3 2017 across different sectors. In contrast, domestic deals dropped from $3.3 billion in Q3 2017 to $1 billion in Q3 2018.

The number of high-ticket deals increased significantly, as eight deals valued at over $500 million were announced in Q3 2018, compared to two in Q3 2017 primarily due to increased participation of sovereign wealth funds and significant activity in oil & gas and chemicals sectors.

“Companies in MENA are still following a cautious approach to deal-making due to modest growth in revenues and a drop in liquidity position, driven largely by ongoing regional market uncertainties, similar to last year," said Phil Gandier, MENA Transaction Advisory Services Leader, EY.

While deal values are higher than 2017, the results of the latest EY Capital Confidence Barometer (CCB) found that one-third (33 percent) of MENA companies expected to pursue M&A in the next 12 months, a 32-percentage-point decline from a year ago.

"In the coming year, we may see subdued deal activity and values," Gandier noted.

The top five target sectors in MENA by deal value were oil & gas ($1.4 billion), chemicals ($500 million), diversified industrial products ($300 million), real estate ($300 million), and consumer products ($300 million).

Prominent MENA players involved in more than two acquisitions include Saudi Arabia's Public Investment Fund, Investcorp, Investment Corporation of Dubai, Amanat Holdings and Dnata, the report said.