Gulf-based mergers and acquisition specialists are forecasting an increase in deal flow volume of around 20 percent in 2011 over 2010, according to the 2011 Middle East M&A Barometer, produced by global financial consultancy M:Communications in partnership with Zawya, the region’s leading business information provider. This year’s survey polled 30 investment bankers from international, regional and local investment banks for their views on M&A growth, country and sector focus.
However, this year’s survey was conducted before the wave of anti-government protests that have swept across the region over the past month, and it is unclear how the unreset in Tunisia, Egypt and elsewhere will impact business activity.
The bulk of activity is expected in Saudi Arabia’s mid-market sector, as regional economies take their cue from strong international oil prices and increased business optimism. Bankers also hope to see some much needed consolidation in the GCC banking sector underway in 2011 as buyer-seller valuation mismatches start to decline.
“Our previous M&A Barometer survey conducted during the spring of 2010 revealed a widespread sense of optimism among bankers who believed that 2010 was going to be the year when this sector of the economy finally bounced back. It would seem that this was a little premature” says Nicholas Lunt, managing director at M:Communications. “Whilst there is a sense of hope looking forward into 2011, with 70 percent of our participants saying that M&A budgets will grow in 2011, the mood is much more measured this year.”
Adds Youssef Saada, head of financial research at Zawya: “Especially in Saudi Arabia, bankers are expecting to see a lot of activity in the mid market, boosted by the $155 billion annual budget recently announced by the government, and which will be aimed at improving infrastructure projects across the Kingdom. Having said that with the recent political development that rose in north Africa and might be spreading, these deals might remain in the pipeline till 2012 when the region is likely to have regained its political stability.”
There is also a significant increase in expectations that Qatar will drive M&A volumes, mentioned now as a primary driver by 30 per cent of bankers compared with 12 per cent in 2010. Other changes see Egypt emerging as an important driver for Middle East M&A activity in 2011, although in light of the ongoing events there it must be doubtful whether this will now be the case.
Sector-wise, financial services has emerged as a clear sector leader for 2011 activity. In 2010, predictions were spread evenly across healthcare, energy, telecoms and financial services.
Other developments such as Qatar’s winning World Cup bid is also expected to generate activity as companies across the region seek to take advantage of the massive developments due to take place there.