M&A deal-making halves in H1

The number of regional mergers and acquisition (M&A) deals in the Middle East slumped by 50 per cent in the first six months of this year, from 444 deals in the first half of 2010 to 222 deals in the corresponding period of 2011, according to the latest M&A Report from Zephyr, the M&A database.

On the other hand, the value of M&A deals declined a more modest 24 per cent during the same period, from deals worth $13.34 billion in the first half of 2010 to $10.19bn worth of deals in the same period of this year. The Zephyr report cites much-weakened private equity (PE) participation in deal-making as part of the reason for the decline in deals.

“The value of deals with Middle East-based targets was driven down, in part, by fragile private equity activity in the region,” the report said. Of the 222 deals with Middle East targets in the first half of 2011, just seven involved private equity investment worth a combined $25m, the report said, adding that PE-driven deals were down a staggering 84 per cent in value terms over the same period of 2010.

There were 12 PE-driven deals in the first half of 2010, worth a combined $157m. In the second half of 2010, there were another 12 PE-funded deals, worth an impressive $656m, Zephyr data shows. From H2 2010, therefore, the decline in the value of PE-funded deals has been an even steeper 96 per cent.

However, the report said “the result was respectable” considering the ongoing political uncertainty in parts of the region, which has forced investors to adopt a wait-and-watch approach. “There was a 43 per cent growth in Middle East deal value compared with H2 2010, driven by increased investment in the healthcare sector,” the report said.

The second half of 2010 saw 480 M&A deals in the Middle East, worth a combined $7.14bn, according to Zephyr. Considering that, traditionally, the first six months are better than the latter period, 2011 is set to go down as another weak year for regional M&A. “The first half is traditionally the stronger six months of the year in Middle East deal-making,” the report acknowledged.

“The value of overall deals in H1 2011 was driven down by weakened private equity activity. Overall transaction value was down 24 per cent compared with the first six months of 2010, while the value of private equity deals plunged 84 per cent,” the report said.

“There were just seven private equity deals with Middle East targets in H1 2011, worth $25 million. This was the weakest result since 2007,” it added.

In terms of volume, Jordan was the most targeted country in the region, registering 116 deals worth a combined $209m, followed by the UAE with 35 deals worth a total of $3.48bn and Oman with 19 deals worth a cumulative $248m in the first half of 2011. Value-wise, Qatar led the charts with $3.6 billion worth of deal-making in five deals, followed by the UAE and then Kuwait, which saw 14 deals worth $1.14bn in the first six months of 2011.

The top three targeted sectors in the region by value during the period were Banks (59 deals worth a combined value of $5.6bn), followed by Education & Healthcare (six deals worth $1.69bn) and Construction (39 deals worth $1.35bn).

Global picture

The value of global deals grew by eights per cent to $1,728bn in the first six months of 2011 from $1,60bn in H1 2010. Transaction values have held despite deal volume continuing a pattern of decline that began in H2 2009. A total of 27,119 deals were announced in H1 2011, the lowest half-yearly result since before the financial crisis.

Growth in global deal values was driven by a 52 per cent increase in the value of private equity and venture capital investment, which reached a global total of $138,154m after bottoming at $91,117m in H1 2010.

The largest private equity deal by value was worth $9,400m and targeted US assets belonging to Australia’s Centro Properties. Blackstone Group provided the equity.

North America and Western Europe performed well, with the value of deals targeting both regions increasing by around a third compared with the year-ago period. The total value of all deals with North America-based targets reached $628,626m in H1 2011 – the highest amount since H1 2009.

The largest global deal by value had a US-based target, T-Mobile USA, and was worth $39,000m, or two per cent of all global transaction value.

There was no growth in the volume or value of deals targeting Asia/Asia Pacific and deal-making activity was at its lowest level since before 2007. There were 7,579 deals with targets in Asia/Asia Pacific worth a combined $334,717m (H1 2010: 10,859 deals worth $389,311m). The weakened result was due in part to lack of growth in the value of deals targeting China, the region’s most important investment target. The largest deal by value in Asia/Asia Pacific in H1 2011 was an acquisition of Australia-based AXA Asia Pacific Holdings.

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