Mergers and acquisitions deals announced in the Middle East and North Africa (Mena) region dropped by 67 per cent in value to $34 billion (Dh124.7bn) in 2009 compared to deals worth $102bn announced in 2008.

According to Ernst & Young's annual Mena M&A update, the number of announced deals dropped from 465 in 2008 to 353 in 2009, a decline of 24 per cent.

The number of announced outbound deals was down from 160 in 2008 to 92 in 2009, a drop of 42 per cent, while domestic deals also fell from 239 to 191 in the same period. However, the number of inbound deals increased by six per cent – from 66 in 2008 to 70 deals in 2009.

The fourth quarter of 2009 also saw a steep fall of 73 per cent in deal value compared to the corresponding quarter in 2008. Although there has been an overall drop in the volume and value of transactions in 2009, the total number of deals in Q4 2009 – 70 announced deals – was 30 per cent higher than the number of deals executed during the same quarter in 2008 – 54 announced deals. The strongest increase was seen in the inbound deals category, from five in Q4 2008 to 14 in Q4 2009, an increase of 180 per cent.

Deal values plummet

The value of domestic deals fell by 58 per cent from $27.6bn in 2008 to $11.6bn in 2009, while outbound deals dropped by 72 per cent from $69bn in 2008 to $19.3bn in 2009. Value of inbound deals also fell by about 46 per cent.

Phil Gandier, Head of Transaction Advisory Services at Ernst & Young Middle East said: "Regional and foreign acquirers are looking at regional firms for consolidation or expansion of their business during the downturn and they are looking for concessions. A clear M&A trend shows companies are moving away from half a billion dollar deals to smaller and medium-sized deals, reflecting a decline in asset values. Average deal size decreased from $351m in 2008 to $189m in 2009. In the cross-border segment, average size of inbound and outbound deals was also down by 45 per cent and 47 per cent respectively."

Comparative performance

Deals with a size greater than $500m have fallen from 14 per cent in 2008 to eight per cent in 2009. Smaller sized – less than $100m – deals have increased from 59 per cent to 62 per cent, while the medium-sized deals from $100m to $500m increased from 27 per cent to 30 per cent in 2009. UAE leads deal count and Egypt tops deal value

In terms of number of domestic and inbound transactions, UAE recorded the most with 65 deals, followed by Egypt (40 deals), Saudi Arabia (34 deals) and Kuwait (31 deals). In terms of deal value, Egypt has attracted 23 per cent of the total disclosed domestic and inbound funds in the region at $3.33bn followed by Morocco ($2.86bn), and Kuwait ($2.26bn). Diversified industrial products led the number of inbound transactions in 2009 with 11 deals. Banking and capital markets recorded the most number of domestic deals (39) and the highest value for both inbound ($941m) and domestic deals ($3.6bn).

Leading sectors

Domestic transactions comprised almost 54 per cent of the activity, followed by outbound at 26 per cent and inbound at 20 per cent. Value-wise, outbound transactions comprised 50 per cent of activity followed by domestic transactions (44 per cent) and inbound at six per cent.

"Despite growing sense of anticipation that the deal drought may end, there is also a clear recognition that traditional methods for investing capital will no longer be adequate or sustainable. Boards are now focused on strengthening their core and rightsizing the operational and capital base of their operations to establish resilience.

A possibly prolonged period of uncertainty will see them applying more sophisticated valuation methods and more comprehensive diligence. This is one of the many lessons that companies have and must learn from the changed business landscape," concluded Phil.