UAE and Saudi to lead GCC M&A activity in Second Half of 2009

Even though merger and acquisition agreements have fallen considerably across the GCC, in sync with the global slowdown, the UAE and Saudi Arabia may see most of the agreements happening in the second half of this year as far as the region is concerned.

According to Azhar Zafar, Head of Mergers and Acquisitions at Ernst & Young Middle East, the UAE and Saudi Arabia will see the most number of deals in the Middle East.

Nawal Roy, Managing Partner, Shobhit Capital Group based in the US, sees the UAE as one market where maximum number of deals are expected to happen in the latter part of the year.

"We expect to see M&A activity still subdued in the second half of the year. Early signs suggest there maybe some activity in Saudi, Egypt and the UAE," says Vikas Papriwal, a partner in KPMG's private equity and sovereign wealth funds practice. However, market stabilisation is vital if deals are to happen.

"In the beginning of the year, there was little buyer interest in transactions at any price. With stabilisation in the last couple months, groups are again considering growth investments, but buyers can afford to be selective. We should see some pickup in activity at the year-end as more bids and asks continue to converge," Steve McIntire, Managing Director, Capital Street Partners told Emirates Business.

Agrees Zafar: "M&A deals activity in the coming quarters is dependent on investor confidence – the key driver, which means for companies achieving good operating results as well as on the availability of liquidity," he said.

Experts believe this is a great opportunity to buy but if credit remains limited, most of the deals may be distressed and out of necessity. "It will be more driven either to strengthen or just out of sheer necessity for survival," said Roy.

"If liquidity remains tight, we can expect to see more mergers particularly in the real estate and financial services sectors," said Zafar.

However, deals could be more than just distress, said McIntire. "This is a great time for opportunistic buyers with valuations in many sectors failing to reflect growth inherent in the UAE market. As the market recognises that new consumers will eventually live in all these properties close to completion, there will be bids that appeal to more than forced sellers, at least in non-construction, consumer-driven sectors," he said.

"Sectors that are likely to be more favoured include healthcare, power and utilities and financial services," said Papriwal.

Experts differ on the subject of the sectors that may see the most M&A deals in the coming months.

According to E&Y, most activity is expected in the financial services, telecommunications and the real estate. Roy believes banking sector is very ripe for M&A activity.

McIntire, on the other hand, sees retail and consumer products as the best sectors ripe for deals.

"Retail and consumer products are the broadest markets with the most opportunities. Despite the recent down trend, the UAE consumer market will grow over a five-year horizon. In both consumer product and retail, there is a healthy mix of sellers and buyers along with some interest from financial buyers who recognise the longer-term growth dynamic," he added.