The fourth quarter saw significantly higher deal values yet lower deal activity in 2012 compared to the same period in 2011. Announced deal values increased by 84% from $7.2billion in Q4 2011 to $13.3billion in Q4 2012. Deal volumes in Q4 2012 declined by 17% to 107 deals from 129 deals in Q4 2011.
In comparison to the previous quarter, total announced deal values rose from $9.9billion in Q3 2012 to $13.3billion in Q4 2012, a jump of 35%.
“The 42% increase in announced deal values in 2012 suggest that there may be an improvement in the valuation gap amongst buyer and sellers in the market in comparison to last year where total deal values were considerably lower,” Phil Gandier, MENA Head of Transaction Advisory Services, Ernst & Young, said.
Additionally, he added, many businesses those restructured their capital back in 2011 left them well placed to finance and close deals in 2012. “As 2013 unfolds there is an anticipation that the improvement in deal activity in 2012 will further improve as we start to see market conditions continually improving despite the unpredictable macroeconomic landscape.”
From an acquirer’s perspective, countries that ranked highest in terms of announced deal value were UAE at $13.5billion, followed by Qatar at $11.2billion and Kuwait with $3.9billion. Of the top 10 announced deals by value in MENA in 2012, four of the deals were acquired by Qatar and three of the deals were acquired by the UAE.
The countries that saw the largest number of announced acquisitions in 2012 were the UAE (77 deals), Qatar (48 deals), and Saudi Arabia (33 deals).
In the domestic space, Egypt and the UAE saw the highest activity in terms of target country focus of announced domestic deals, with 36 and 33 deals respectively in 2012. The countries with the highest deal values for target country focus of announced domestic deals in MENA were Kuwait at $4.9billion and Egypt at $3.4billion.
In terms of value, outbound deals held the greatest value among total announced deals, comprising $19.4billion, 43% of total announced deal value in 2012, compared to $15.6billion for domestic deals and US$9.9bn for inbound deals. Domestic transactions outnumbered inbound and outbound deal activity, comprising 48% of total deals in 2012.
Total inbound announced deal value saw the largest improvement compared to 2011, increasing by 77% from $5.6billion in 2011 to $9.9billion in 2012. Announced domestic deal values also saw a significant rise of 60% compared to 2011 despite the decline in announced domestic deal volumes from 224 in 2011 to 190 in 2012.
“The increase that we’ve seen in deal values across all types of deals in 2012; particularly inbound deals when compared to 2011 highlights that the MENA markets still continue to remain attractive to global investors and institutions as they look to emerging markets as attractive regions for growth,” Phil, added.
Oil & Gas, Professional Firms and Services and Consumer Products sectors were the most active in terms of the number of announced inbound deals. In terms of value, Telecommunications led the inbound deals at US$3.3bn due to the sole transaction of France Telecom SA buying the Egyptian Company for Mobile Services.
In terms of announced outbound deals in 2012, the Real Estate sector led in activity with 21 deals followed by Consumer Products with 13 deals. The Oil & Gas sector was highest in terms of the value of announced outbound deals at $5.7billion followed by the Professional Firms and Services sector at $3.4billion.
Sectors that attracted the most domestic M&A activity in 2012 in terms of volume included Real Estate, Asset Management, and Consumer Products. The Banking & Capital Markets sector had the highest value of domestic M&A deals at $5.2billion, followed by the Telecommunications sector at $4.1billion.
“A few deals have been completed in the Telecommunications, Oil & Gas and Banking & Capital Markets sectors which are characteristically high in value. These big ticket deals are a promising sign that markets are developing and picking up pace,” Phil said.
Of the 398 deals announced in the MENA region in 2012, 71 deals were in the SWF/PE space, an increase of 54% from the 46 deals in 2011. The 71 deals comprised $13.3billion of the total announced deal values in 2012. The month of March saw the most activity in 2012 with 14 deals. Most of the SWF/PE deal activity was in the Real Estate sector however the highest SWF/PE deal values were in the Oil and Gas sector.
“The significant increase in SWF/ PE activity has boosted the regional markets through the increasing number of transactions taking place. Much of the wealth in the region is held by SWFs – which are some of the biggest in the world. Their increasing activity reflects the growing confidence in the regional markets. We expect this to push the momentum of deal activity and encourage regional investors to firm up their M&A plans. The year ahead looks more positive for the regional M&A market.”
The slowdown in global M&A continued through 2012 as the value of deals fell by 47% to a projected $2.25trillion from the height of the M&A boom in 2007 of $4.3trillion and are 21% down in volume to 36,865 in 2012 from 46,701 in 2007.
Global M&A activity in 2012 is down on last year, with volume falling 12% compared to 2011, while the total value of deals fell by 8% as macro-economic concerns, including the ongoing Eurozone crisis and the impending “fiscal cliff” in the US, restricted corporates in the developed markets from committing to acquisitions. M&A activity is predicted to remain low in 2013, with the appetite to acquire among large global corporates falling.
The rapid rise of M&A in the BRIC nations from 2007 to 2010 was not sustained in 2012 – but they still performed better than the Eurozone countries. In 2007, the BRIC nations accounted for just 7% of the global M&A market by value. In 2012 the figure is 15%. The Eurozone in 2007 contributed 21% of the global value of M&A – this has now fallen to 11%.
Brazil was the most resilient BRIC in 2012, with volume flat, whereas Russia saw a fall of 27%. China fell 10% and India 2%.
“Acute caution was the prevailing M&A sentiment in 2012. The Eurozone crisis continues to impact 9 global companies in every 10 and in 2012 we saw its impact reduce the appetite for M&A – even in many formerly deal-hungry emerging markets. Limited deal activity will likely continue through 2013, especially if we don’t see a clear, long term resolution to the US fiscal cliff in the US,” Pip McCrostie, Global Vice Chair, Transaction Advisory Services at Ernst & Young, added.