Tech and telecoms deals lead increased M&A activity

Brid-Aine Parnell

Monday 8 August 2016

Low oil prices can’t dampen the enthusiasm for mergers and acquisitions (M&A) in the Middle East, as markets open to foreign investment and cross-border deals accelerate.

In the past few years, mergers and acquisitions have accelerated in the Middle East and this year, telecoms, media and technology looks to be the hottest sector for deals.

Mergermarket recently released its Global Heat Map for M&A activity, showing that the telecoms, media and tech sector (TMT) was likely to top the charts with 27 companies currently up for sale or likely to come to market. Within the region, the UAE’s sector in particular is projected to show a lot of activity with media houses and software development companies on the market.

“Based on the last six months of research, we consider this to be a ‘hot’ sector, so it is no surprise that the highest valued UAE deal of Q1 was the $292 million acquisition of e-commerce platform by Standard Chartered Private Equity limited, Baillie Gifford and International Finance Corporation,” said Kirsty Wilson, global research editor at Mergermarket.

M&A heats up

Just a couple of years ago, M&A activity in the region was subdued, but a number of factors have helped spur deals. A spate of economic reforms in countries in the region has helped by freeing up foreign investment, while the investment arms of governments continue to be active.

In addition, according to a 2014 report from PwC on Middle East Megatrends in Mergers & Acquisitions, there is more chance of family businesses coming into play as they are passed down to the second generation, removing the emotional attachment of having built the business up.

“The first generation will definitely not sell, the second generation will think about if there are good bucks in it, but the third generation will probably sign immediately,” says Dr Ahmed Bin Hassan Al Sheikh, a board member of the Dubai Economic Council, in the report.

Cross-country and family deals

Meanwhile, cross-border deals within the region are also accelerating, according to law firm Baker & McKenzie. Speaking at Mergermarket’s 2016 Middle Eastern M&A and Private Equity Forum, partner Jayshree Gupta says the firm had seen a noticeable uptick, particularly in TMT, food and industrials.

“Most transactions involve more than two Middle East countries. The UAE, Saudi Arabia and Kuwait have been the busiest for the GCC, and it’s exciting to also see more complex technology projects and more know-how come into the region. Client sentiment appears to be strengthening, which bodes well for the remainder of 2016,” she says.

And low oil prices don’t seem to be affecting the pace of M&A in the region.

“According to our CCB, which gauges corporate confidence and how companies manage their capital agendas, 37 per cent of MENA executives expect to actively pursue acquisitions over the next 12 months,” says Phil Gandier, MENA transactions advisory leader at EY.

“Although low oil prices are having a varying impact on MENA countries economically, they are having little impact on M&A strategy as MENA executives continue their steadfast pursuit of deal-making.”

While the success of stock markets in the region may see some firms look to go public in the future, for now, M&A activity continues apace.