A.T. Kearney released its report reviewing the first six months’ of M&A activity in the MENA region last week, finding that deals were up 14% on the last six months of 2015 and reached the second highest level in volume of the past three years.
After a 3-year decline in volume, there were 160 deals in the first six months on 2016 driven in large part by domestic transactions. However, A.T. Kearney found the analysis to show that investors are increasingly looking to execute cross-border deals as a way to diversify their portfolios and create long-term value. Some 48% of the transactions that took place in the first half of year involved a cross-border element, a significant jump over the same period three years ago. Of these transactions, more than 70% included participation by international investors.
“The rapidly changing macroeconomic environment has driven the M&A market to soar,” said Cyril Gourp, a Principal at A.T. Kearney and co-author of the report.” GCC nations continue to drive outbound investments from the MENA region. We expect more mergers as acquisitions in the years ahead, as GCC companies look for further diversification, skills and growth opportunities.”
North Africa continues to gain momentum, pulling alongside the Middle East in terms of deal volume, a major shift from three years ago when the sub region accounted for about 20% of M&A activity in the entire MENA region. Egypt and Morocco, in particular, have seen significant growth in the number of deals. A.T. Kearney credits improved fiscal policies, sound infrastructure, increased access to credit and higher levels of education as being some of the factors which have helped North Africa expand its share of the region’s M&A activity.
MENA investors are increasingly allocating capital overseas in order to help diversify portfolios away from oil-related returns and to increase technology transfer and knowledge to help domestic portfolio holdings. Opportunities in the USA have proved to be more enticing than those in Europe to MENA investors, with portfolios with historically heavy exposure to Europe being rebalanced. Both the volume and value of deals in Europe in the first half of the year were the lowest recorded.
“The increased availability of distressed assets globally offers opportunistic M&A opportunities for regional players, and the structural changes underway in Saudi Arabia will likely yield long-term M&A potential,” Gourp concluded. “We also see North Africa remaining an attractive M&A destination due to robust fundamentals. Players such as sovereign wealth funds will keep fueling the M&A market as some continue to rebalance their portfolios.”