Mideast M&A crashes by 79% in Q3 as Arab Spring frustrates new deals
Posted on 02 October 2011 with no comments from readers
Electronic business information provider Bureau van Dijk blames the political unrest of the Arab Spring for a 79 per cent plunge in merger and acquisition deals in the third quarter of 2011 with just 60 transactions across the whole Middle East worth $1.6 billion. However, the situation is less bad in terms of the total value of M&A activity which dropped by $400 million from Q3 last year.
BvD commented: ‘This suggests that in the case of deals which actually reach the agreed stage, target company valuations were not lower than this time last year. That said, Q3’s 60 deals worth $1.6 billion does not compare favourably with Q2’s 99 worth $6.5 billion’.
These are plainly tough times for investment bankers as well as private equity practitioners as we reported last month (click here). The deal flow from before the Arab Spring has dried up and much of the business world is on hold as far as business purchases are concerned.
Uncertainty is bound to make business less confident about the future and more conservative in its approach. It also makes it difficult to value a business or to achieve a valuation likely to please the seller. A kind of stalemate ensues until either business conditions get better or worse.
Virtuous cycle
In a better business climate the higher M&A values will encourage the sellers and buyers will feel more confident about this value. If business conditions get worse then M&A prices will fall to a level that will bring out the bargain hunters, although even they will want to be convinced that prices will not fall further.
However, regional investment banks continue to prepare for better times ahead. Only today the leading Dubai-based investment bank Shuaa Capital announced the appointment of the former regional chairman and CEO of Credit Suisse, Michael Philipp to its board of directors. Previously at Deutsche Bank he led its global expansion with the acquisition of Banker’s Trust.
Shuaa Capital has made no secret of its own ambitions to expand by acquisition. The Arab Spring has left many of its rivals in the region floundering at low stock market valuations, although Shuaa’s own share price is weak too.
No doubt the current dearth of M&A activity in the region will end at some point in the future. But it is hard to know whether we are at the start of a longer period of stalled deals or just in the soft patch before things start to move forward again.
A big shake-out and consolidation of business activity across the region would be a positive for future efficiency and expansion.
