Middle East merger activity to continue despite low oil prices – EY

Low oil prices are having little impact on the volume of Middle East and North Africa merger and acquisition activity, but distressed asset sales are playing a more prominent role, according to consultancy EY.

The company said domestic deal volumes in MENA increased 43 per cent in the first quarter, rising from 21 in 2015 to 30 in 2016.

Its Capital Confidence Barometer survey also found that 37 per cent of MENA executives expected to actively pursue acquisitions in the next 12 months.

However, tightening capital in the region meant governments were being given priority access to funding, leaving less available to companies, particularly family-owned businesses, EY noted.

“SMEs in MENA are being forced to take a hard look at their portfolios and shed any non-core assets in an effort to either shore up their balance sheets to weather any economic uncertainties or release cash to fund potential M&A activity,” said EY MENA transaction advisory services leader Phil Gandier.

“We are starting to see more portfolio review/optimisation initiatives than we ever seen in the MENA region and this will drive M&A activity.”

In the survey, EY found that one third of companies were looking for middle market deals to help them compete in a changing consumer landscape.

They were also found to be focusing on strategies to attract and retain customers as spending tightens.

But thee were found to be disparities in price expectation between vendors and buyers, with the equilibrium moving closer to buyer valuations.

“As a result, sellers are becoming increasingly pressed to price some of the macro risks into deal pricing,” said MENA M&A and IPO leader Anil Menon.

EY projected regional executives of multinationals would take a wait and see approach, looking to the confidence of the US and Chinese economies and the Brexit debate to guide investment decisions.

But it predicted family-owned businesses would continue to look for strategic assets, meaning $50bn to $60bn of M&A activity should be expected again this year.