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Abu Dhabi, UAEThursday 13 December 2018

Mena M&A deal value doubles in third quarter to $10bn, EY says

But next year will see slower activity

The biggest deal during the quarter was Saudi Aramco’s $1.6bn acquisition of Arlanxeo, Holding a chemicals company in the Netherlands. Reuters
The biggest deal during the quarter was Saudi Aramco’s $1.6bn acquisition of Arlanxeo, Holding a chemicals company in the Netherlands. Reuters

The value of announced mergers and acquisitions in the Middle East and North Africa more than doubled to $10 billion in the third quarter from a year earlier, amid expectations of slower activity in 2019, according to consultancy EY.

The Gulf Cooperation Council accounted for 79 per cent of the value of announced deals and 73 per cent of deal volume, EY said. The number of big ticket transactions grew to eight from two in the year-earlier period because of increased participation of sovereign wealth funds and activity in the oil, gas and petrochemicals sector. The biggest deal during the quarter was Saudi Aramco’s $1.6bn (Dh5.87bn) acquisition of Arlanxeo, a chemicals company in the Netherlands.

“Companies in Mena are still following a cautious approach to deal making due to a 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 at EY.

“While deal values are higher than 2017, the results of the latest EY Capital Confidence Barometer show that one-third of Mena companies expect to pursue M&A in the next 12 months, a 32-percentage-point drop from a year ago. In the coming year we may see subdued deal activity and values.”

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Cross-border deal value rose five-fold to $9bn during the period, while outbound deals grew four-fold to $6.4bn and inbound deal value increased to $2.6bn from $28.6m a year earlier, the consultancy said.

Domestic transactions fell by a third to $1bn due to focus on cross-border deals.

Some of the high-profile Mena players that snapped up more than two acquisitions during the third quarter include Investment Corporation of Dubai, the emirate’s sovereign wealth fund, Saudi Arabia’s Public Investment Fund and Bahrain-based alternative investment firm Investcorp.

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

“As we look ahead to 2019, one of the key themes we see continuing is sector consolidation and emergence of cross-border deal making,” said Anil Menon, MENA M&A and ECM leader at EY. “Strategic acquisitions by regional sovereign wealth funds are expected to be robust given the strong deal pipelines and the government(s) mandate to pursue diversification as a strategy. Also, strategic buyers will continue to look for value-chain expansion opportunities.”