Middle East M&A deal volume falls in H1 as investors escape troubled markets: report

The number of deals executed in MENA dropped by 23% to 192 transactions in the six months ending in June

A recent report issued by the auditing and consultancy firm EY found that mergers and acquisitions (M&A) in the Middle East and North Africa (MENA) region have slumped in terms of volume of transactions executed and value of deals announced, during the first half (H1) of 2017, as investors focus on low-risk markets outside the region, plagued by political uncertainties and slowing economic growth.
The number of deals executed in MENA dropped by 23 percent to 192 transactions in the six months ending in June, from 250 deals recorded for the same period in 2016, the report said.
The value of deals announced in the MENA region also decreased by 17 percent to $31.9bn in H1 2017, down from $38.9bn from a year earlier.
According to the report, economies in the MENA region are slowing on the back of persistently low prices that have slumped from the mid-2014 peak of $115 a barrel to the $50 level.
That has led governments to reassess budgets, subsidies, and public spending.
Qatar's diplomatic rift with Saudi Arabia, the UAE, Bahrain, and Egypt, now in its third month, has also affected investor sentiment, according to the report.
Outbound deals have accounted for the highest value during the first half of this year, reaching a total of $19.6bn from 61 deals, according to EY.
Some "61 percent of the acquisition capital was allocated outside MENA, making it a net exporter of capital," said Phil Gandier, MENA transaction advisory services leader at EY. "We expect this trend to continue for the remainder of the year as investors continue to see more value and lower risk in non-MENA markets."
The Dubai Aerospace Enterprise acquisition of AWAS Aviation Capital for $7.5bn was the largest deal announced during the first half of this year, EY noted. Domestic deals remained on top in terms of volume with 93 transactions, pulling in $5bn in value. There were only 38 inbound M&A transactions, with value of $7.3bn, during the period.
The average transaction value of inbound deals rose by 36 percent and outbound value by 123 percent in the first six months, compared with the same period of 2016.
M&A activity in the three-month period ending June 2017 also declined from the previous year. There were 80 deals announced in the second quarter of 2017 with a value of $12.7bn, a drop from 135 deals reaching $20.1bn announced in same period in 2016, according to EY.
The oil and gas sector accounted for more than 76 percent of the total MENA deal value registered in H1 2017. It was the top performer, with value of transactions reaching $11.5bn in first six months ending June, followed by the airline industry at $ 7.5bn. Power and utilities came in third with $3bn, and then the chemicals sector at $2.2bn. The banking and capital markets industry, which accounted for $1.9bn, came in fifth in the H1 sector ranking.
"There is significant deal activity in retail and consumer products, as well as oil and gas, and a secular shift in capital allocation to the e-commerce and tech sectors in MENA. The market is loading up for a spate of deal announcements soon after summer," said Anil Menon, EY's MENA M&A and equity capital markets leader.