M&As in UAE drop 24% to Dh31bn in 2014

The cross-border merger and acquisition activity in the Middle East grew but fell in the UAE in 2014. But it’s expected to pick up again next year in the UAE, according to by Baker & McKenzie Habib Al Mulla.

The total value of merger and acquisition (M&A) activity in the UAE dropped 24 per cent from $11.2 billion (Dh41.1bn) in 2013 to $8.5bn (Dh31.2bn) as of December 14, 2014, but the activity is expected to accelerate next year, said Tom Thraya, UAE Head of Corporate/M&A for Baker & McKenzie Habib Al Mulla.

"The increasing trend looks set to continue in 2015, with stable markets such as the UAE and Saudi Arabia remaining attractive to international investors. Factors such as the UAE's increasing importance as a business hub for the Middle East and Africa, and the opening up of Saudi Arabia's stock exchange for foreign investors in 2015, are fueling optimism for a further acceleration of M&A activity in the region," said Thraya.

Quoting data from Thomson Reuters, the study revealed that the number of inbound M&A deals in UAE has fallen while the deal value has increased.

As of December 14, 58 deals have been announced so far this year, compared with 62 in 2013, with an aggregate value of $3.98bn, an increase of 208 per cent compared to $1.29bn in 2013. The US is the largest acquirer of UAE companies, with 8 deals worth $3.2bn in total. Cayman Islands ($238 million) followed next in terms of deal value and India (4 deals) in terms of deal count.

Qatar is on the third spot both in terms of deal value ($150m) and deal count (3 deals).

In the UAE, outbound activity in 2014 has so far amounted to $4.52bn, representing a 54 per cent decline from the full year 2013 figure of $9.91bn. For the current year to date, the UK (39 per cent), Ireland (22.2 per cent), Italy (14.8 per cent), and Egypt (10.7 per cent) dominate UAE outbound M&A, representing almost 87 per cent of total deal value.

In terms of deal count, Egypt (11 deals), the UK (8 deals), the US (7 deals) and Turkey (5 deals) had the most number of transactions. In 2014, the financials, energy and power, and industrials sectors have seen the highest value of investments by UAE-based companies, accounting for 78 per cent of aggregate deal value. Total investment in the financial sector was mainly driven by the $1.6bn acquisition of Travelex Holdings, a London-based provider of currency exchange services.

Travelex was bought by the billionaire BR Shetty, owner of UAE Exchange, in a £1bn deal early this year.

Middle East M&As grow

In the Middle East, 2014 has been a strong year for cross-border M&A activity with the number and value of deals increasingly significantly, said Thraya.

"The Middle East has seen a very robust year in terms of both inbound and outbound M&A activity,” he said.

Data from Thomson Reuters reveals that as of 14 December 2014, the total value of Middle East inbound M&A activity has already surpassed 2013, increasing by 53 per cent to reach $9.5bn. In terms of deal value, inbound acquisitions were driven by the US (49.8 per cent), followed by China (10.3 per cent) and Switzerland (7.1 per cent). The US had the most number of transactions with 43 deals, followed by India and China, both with 8 deals.

In Saudi Arabia, total inbound deal value has increased by 91 per cent to $1.2bn, although the number of transactions has dropped to 17 deals.

The increase in deal value was driven by a few large deals including the $562 million acquisition of Yanbu Co, a manufacturer, wholesaler and retailer of gasoline; the $235 million acquisition of General Lighting Co JSC, a manufacturer and wholesaler of lighting fixture products; and the $147.3 million acquisition of Al Mada Towers. These transactions account for almost 80 per cent of total deal value for 2014 year-to-date. China ($562 million), Netherlands ($235 million) and the United Kingdom ($122 million) were the top acquirors in terms of deal value while Kuwait (3 deals) and the United States (2 deals) led by deal count).

Outbound M&A activity

Middle East outbound M&A activity in 2014 increased by 67 per cent compared to full year 2013 to reach $29.23bn.

For the current year-to-date, the UK (45.7 per cent), the US (8.6 per cent), and South Korea (6.8 per cent) are the largest recipients of Middle East outbound M&A activity. In terms of deal count, the US (45 deals), the UK (18 deals), and Egypt (18 deals) have the most number of transactions.

In 2014, Middle Eastern companies invested heavily in real estate, energy and power, financials, and healthcare sectors.

These four sectors account for over 80 per cent of total deal value. In terms of deal count, media and entertainment, industrials, real estate, and energy and power have seen the most number of transactions. Acquisitions in the healthcare sector grew 6.5 times for the current period versus full year 2013, followed by Retail, which grew 5.8 times. In third place is Real Estate, which grew 5 times.

In Saudi Arabia, there have been 33 outbound transactions so far in 2014, with an aggregate amount of $2.59bn, an increase of 115 per cent from $1.21bn in 2013.

South Korea, the UK, and Egypt have been the largest recipients of outbound M&A activity with almost 96 per cent of total deal value for the period. In terms of transaction volume, Egypt has the highest so far with 6 deals, followed by Spain and the UK with 4 deals each. The energy and power, real estate, and materials sectors received the largest investment, representing almost 90 per cent of total deal value for the period. In terms of transaction volume, industrials and materials have been the most targeted industry with 5 deals each.

Saudi Arabian Oil Company's (Aramco) announced $1.96bn acquisition of Korean S-Oil Corp. has been the largest transaction recorded so far since 2010.

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