Regional M&A activity in 2019: fireworks or a squib?

The regional mergers and acquisitions (M&A) market has had two contrasting halves this year. While Saudi Aramco’s acquisition of Saudi Arabian Basic Industries Corporation (SABIC) in March set the tone for a stellar H1, 2019 is drawing to a close on lacklustre Q3 activity. The MEA (Middle East and Africa) region announced 220 transactions valued at $115.7bn in the first half of 2019, according to an M&A report released in October by data provider Mergermarket. However, the 82 deals signed in the third quarter were worth a much lower $9.4bn, the lowest quarterly value since Q3 2015 ($6.1bn, 119 deals).

In the Middle East alone, 65 transactions worth $94.7bn were recorded in the first nine months of 2019, of which only 11 deals were attributed to Q3, the report revealed. Subdued regional Q3 activity mirrored global trends: globally, Q3 M&A activity valued in at $622.2bn worth of deals, 21.2 per cent less compared to the same period last year ($789.7bn), according to Mergermarket data.

In the GCC region, Saudi Aramco’s $69.1bn acquisition of a 70 per cent stake in SABIC was the biggest deal so far this year. The next biggest deal in the region was in the UAE, where investment firms BlackRock and Kohlberg Kravis Roberts & Co (KKR) acquired a combined 40 per cent stake in ADNOC Oil Pipelines worth $4bn in Q1.

Overall, in the first nine months, the MEA region recorded 12 big-ticket deals valued at more than $1bn, including six in Q1 and three each in Q2 and Q3. In terms of sectors, the industrial and chemicals sector remained the most lucrative for the MEA region during Q1-Q3 2019, followed by energy, mining and utilities, and technology.

What does 2020 behold?

M&A intentions remain strong – while the global economy is softening, growth is still expected. In Ernst & Young’s Global Capital Confidence Barometer survey released in October this year, 52 per cent of over 2,900 executives polled across 45 countries said they intended to actively pursue M&A in the following 12 months. Also, 68 per cent are expecting the M&A market to improve in the next 12 months.

Regionally, many potential deals are already in the offing. UAE-based Dana Gas is reportedly planning to offload its Egyptian assets worth more than $500m. Meanwhile Abu Dhabi’s ADNOC, following a spate of recent M&A activity, has also initiated a potential stake sale in its natural gas pipelines in a deal that could be worth about $5bn.

It is anticipated to be completed next year, according to media reports.  Looking ahead, dealmakers will closely follow how regional tensions unfold, while monetary policy, particularly in the US, will remain a factor, given the reliance of local currencies on the US dollar and the possible effect on oil prices, the Mergermarket report noted.