Arab Spring keeps M&A activity low

The value of Middle East-focused merger and acquisition (M&A) deals slumped to just $1.59 billion in the third quarter of this year – a 75 per cent decline from the $6.47 billion recorded in Q2 2011, according to global deal tracking firm Bureau van Dijk’s Zephyr database.

Deal activity in terms of volumes declined 39 per cent, from 99 in Q2 to 60 in Q3, Zephyr data showed.

“Political unrest had a significant impact on the number of transactions taking place in the Middle East in the third – and indeed the second – quarter of 2011,” the BvD report said. “Q3’s 60 deals worth $1.59 billion does not compare favourably with Q2’s 99 worth $6.47 billion,” it added.

Compared with Q3 last year, however, volumes saw a major slump while values declined by just a fifth. “There were just 60 transactions with Middle East-based targets in Q3 2011 – a 79 per cent drop from the 281 recorded in Q3 2010. However, value fell at a much slower rate of 19 per cent over the same timeframe from $1.96 billion to $1.59 billion.

This suggests that in the case of deals which actually reach the agreed stage, target company valuations were not lower than this time last year,” the report said.

Most of the highest value deals were cash calls by businesses looking to strengthen their capital, rather than acquisitions by companies looking to expand through M&A.

Among the businesses raising funds were Qatar-based property group United Development Company and financial services firm National Leasing Holding Company.

Moreover, in a sign that private participation in deal-making remains conspicuous by its absence, there were no private equity investments in the Middle East in Q3 2011 and activity targeting the region has been weak throughout the year – a clear consequence of weak international investor sentiment.

Deals targeting companies based in Jordan accounted for 63 per cent of all Q3’s Middle East transactions. It was by far the most frequently targeted country in the region, with 38 transactions compared to six for second-placed UAE. This is despite the fact that the number of deals targeting Jordan has declined every quarter since peaking at 232 in Q3 2010.

Banking and construction sectors were the most important deal targets – in monetary terms – in Q3. The value of deals with targets in the construction sector rocketed from $7 million in Q3 2010 to $617 million in Q3 2011, while the value of banking deals fell over the same timeframe.

Other growth sectors in a comparison with Q3 2010 included utilities (gas, water and electricity), the primary sector and publishing/printing. Health was one to watch in 2011, but interest has dwindled since transactions worth $1.68 billion targeted education and health operators in Q1 2011.
 

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