UAE set to join mature M&A markets

The UAE, which has been classified as transitional market, is set to join the league of mature countries next year for mergers and acquisitions activity, according to a new study from the Mergers and Acquisitions Research Centre (MARC) at Cass Business School.

The emirate, however, topped in the Middle East region and ranked 29th globally on the M&A maturity index with a high overall MARC score of 2.2 (almost 80 per cent) which indicates that it is relatively mature for domestic and inbound cross-border M&A purposes.

The index classifies the UAE as a 'transitional' market, but predicts that it will reach the 'mature' stage by the time of the index update report expected next year.

The UAE's strong position is linked to features such as its high level of political stability and low levels of corruption, with a score of 1.3 for its political environment (close to the 'mature' market average of 1.1). However, the country's score of 3.0 for its technological environment is significantly worse than the 'transitional' market average, indicating that increased investment and development is necessary in this area before the UAE can be viewed as a 'mature' market.

Saudi Arabia, Qatar, Bahrain, Oman, Kuwait, all achieve similar scores on the index, ranging from (2.6-2.9 / approximately 52% - 58%) and are also classified as 'transitional' markets with growth potential. Considered to be of high interest to foreign companies, these markets are becoming increasingly more active in the global M&A market, but further development is needed to boost technological output and to improve socio-cultural factors in order for these markets to reach 'mature' level.

Representing the wider Middle East, Jordan is placed on the cusp of the 'transitional' market category with a score of 3.0, while Egypt is classified as an 'emerging' market with an index score of 3.1. Despite Egypt's ranking placing it close to the 'transitional' market average for regulatory factors, the country's low political score, as well as weakness in technological and socio-cultural factors is holding it back from reaching the transitional development phase.

The study, however warned that the region as whole range of fresh measures in order to be categoriesed into a mature market.

The Gulf States including the UAE, Saudi Arabia, Qatar, Bahrain, Oman and Kuwait, as well as Jordan, score as 'transitional' markets in the new study, while Egypt is identified as an 'emerging' market for M&A activity.

The Cass MARC M&A Maturity Index, sponsored by Ernst & Young, Allen & Overy, Credit Suisse and Mergermarket, is the first of its kind and ranks the maturity of 175 countries for M&A activity according to their regulatory, economic, financial, political, technological and socio-cultural environments. The index has a 0.81# correlation with M&A activity; more than double that of the World Bank Group's 'Protecting Investor Index', which has a correlation of just 0.30.

Traditional bases for M&A activity, such as the UK, US and Japan, top the rankings. However, Asia, including South Korea, Singapore and Hong Kong, also emerges as a favourable region for M&A purposes.

As a region, the Middle East is classified as mid-way in the transitional development stage, on par with other transitional markets such as Latin America, and Central and Eastern Europe. On the whole, the index recognizes the Middle East is as an increasingly important net investor, however its regional score of 2.8 (index equivalent of approximately 56 per cent) indicates that several developments are necessary in order for it to become a 'mature' region for inbound and domestic M&A. 

Phil Gandier, Head of Transaction Advisory Services at Ernst & Young Middle East and North Africa said: "It is clear from historical data that with greater M&A market maturity comes greater sustained deal flow, irrespective of economic cycles. Performance of regional M&A markets in 2010 indicates that the appetite for deals is growing. The region is moving up the fast growing 'transitional' category and is poised to escalate deal flows, even though more investment in technology and financial infrastructure is needed. With an average score of 2.8, the Middle East's relatively new M&A markets have undergone rapid development over the past five years as compared to the mature markets who have an M&A history of many decades."

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