MENA deal activity at marked slowdown, but GCC sees continued growth

A recently released report from MENA Research Partners found a slowdown in M&A deal activity in the MENA region during the 2nd quarter. The numbers fell short after a three-year rebound, as major factors like regional political disturbances and low oil prices in the GCC impact investor confidence across MENA. 

Yet, according to Anthony Hobeika, managing partner and founder of MENA Research Partners, “the region still depicts a compelling economic backdrop, which is sufficient to propel more transactions going forward in selected geographies.” 

The value of M&A transactions in the region reached $9 billion in 112 deals for the first quarter of 2015, down from $14 billion in 150 deals for the same period in 2014, according to the report.

Gulf News Journal spoke with Hobeika about these deals, and what they mean for the overall business environment in the MENA region.

GNJ: What factors in the GCC allow it to continue to have a strong performance?

Hobeika: The GCC countries continue to attract most of the number and value of deals in the region, along with larger transactions being closed. The attractive risk environment and the steady economic outlook are the main factors of this ongoing outperformance. The GCC countries have long enjoyed a stable political framework when compared to other Arab countries, having successfully laid foundations of well-entrenched states in their population. From a socio-economic perspective, factors such as the progressive business-friendly reforms, generous social handouts, large-scale public spending, increased role of the private sector in the local economies as well as the largely available financial buffers all lead to fast-growing investment opportunities.

GNJ: What is the impact of high value deals on these numbers? Why have they decreased?

Hobeika: With the number of deals on a general downward trend since 2009, the large tickets managed to keep the overall M&A picture positive. During the recent quarters, the overall political situation across key MENA markets as well as the low oil prices led to a generalized slowdown.

GNJ: The food and beverage sector seems to be the only specific sector that has seen an increase (about double from previous years). Why is that?

Hobeika: While cyclical sectors take a break during volatile times, cross border expansions and market consolidation in defensive sectors such as food & beverage remain upbeat. From a fundamental economic standpoint, with most of the MENA countries largely underserved in key sectors catering to basic needs, the M&A market is expected to depict steady performance in areas such as F&B, education, healthcare, among others.

GNJ: Foreign acquirers have decreased in the MENA region for the first quarter of 2015. Is this also true for the GCC? Why?

Hobeika: Foreign investors have been cautious via-a-vis the bulk of the MENA region, on the back of the geo-political situation. While the GCC region maintained an overall stable standing, most of the other Arab countries witnessed a marked slowdown of foreign inflows. This reflects the political as well as economic risks underpinning investing in the long-term of fundamentally troubled economies.

GNJ: Do we know why regional investors are now less reluctant to give up control of their business?

Hobeika: Regional business owners have been traditionally reluctant to give up control. With most of the regional companies being family-owned businesses, corporate assets are frequently considered as part of the personal & family wealth and pride with a quasi-absence of formal institutionalization. As such, keeping majorities remains a major barrier to more large-scale transactions.

GNJ: What does this report say about the general atmosphere of investing in the Middle East?

Hobeika: The overall investment environment remains on the positive side in the MENA, in particular in the GCC countries and other selected economies. Investors are increasingly but selectively considering key areas to invest and expand. However, a stable, sustainable and marked rebound remains relatively absent since the end of the financial crisis in the year 2009 as the Arab Spring and other political and economic factors continue to weigh on investor confidence.