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04 December 2023

Limited capital to push M&A activity

Mena firms looking to dispose of non-core assets to generate cash flow and optimise returns. (AP)

By Shuchita Kapur

Companies disposing of non-core assets will increase merger and acquisition activity in the Middle East and North Africa (Mena) in 2010, according to Mergermarket.

In their latest report, analysts at Mergermarket believe limited capital will push up M&A activity in the region.

"A lack of liquidity in the region meant that companies are looking to dispose of non-core assets, both domestically and abroad, to focus on generating good cash flow and optimising returns from their most profitable assets. This is due to fuel the region's deal activity over the next 12 months."

During times of high growth, many companies went on a spending spree internationally to expand their asset base, but it seems times have changed as consolidating the balance sheet has now become a greater priority, says the report.

On sector-specific, the experts believe banking and real estate are the two sectors likely to see the most M&A activity in Mena.

"Indeed, the region is heavily over banked and consolidation of the sector is considered long overdue. The region's largest banking merger in early 2007 between Emirates Bank and National Bank of Dubai was expected to be a catalyst for further mergers, but this has not happened."

Pride and national identity are reasons often cited as barriers to the much-needed industry consolidation, says the report. However, this could change going forward. The much-awaited merger between Islamic home finance companies – Amlak and Tamweel in the UAE – could be the first in a wave of financial services industry deals.

Another reason for an increase in M&A activity is the fall in the value of real estate across Mena. "[This] has also forced real estate companies to look for outside investors, either to buy the company outright or to sell its portfolio."

The authors of the report believe there will likely be a wave of mergers between real estate companies, perhaps the first being in the UAE between Dubai Properties, Tatweer and Sama Dubai.

"Operationally-driven mergers and acquisitions are also likely to pick up this year," according to Dr Dirk Buchta, Partner and Managing Director, AT Kearney, Middle East, as quoted in the report. Commenting on a recent research report, he said, "Most of the industries are under heavy competitive pressure. They will seek to complement their portfolios with new capacities and will enter new product lines, new geographies,'' Dr Dirk Buchta said.

"Widely diversified family-owned conglomerates may want to take another look at their businesses and be more focused, which would drive mergers and acquisitions further."

Another sector that could see continued M&A activity in 2010 is telecom as the largest players, such as etisalat, seek buys in North Africa, Iran, Iraq and South Asia, and telecom operators, such as Batelco, look to sell stakes. "This coming year could also see the strongest and most buoyant companies in Mena looking to invest in sub-Saharan Africa. For example, Egypt-based private equity firm Citadel Capital is setting its sights on the region for future investment," he said. Morocco is expected to see several major privatisations around Q2 2010 and Tunisia, while still a very small market, is looking to develop its banking sector and has become a major financial platform hyphenating African and European businesses, the report said.


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