Mergers and initial public offerings in the first three months of 2018 were higher in value than in the same period last year
Asset sales from Saudi power plants and football clubs to African energy firms are set to help deliver a bumper year for deals in the region.
Investment banks expect the pace of transactions in the Middle East and Africa seen in the first quarter to gain momentum.
Mergers and initial public offerings in the first three months of 2018 were higher in value than in the same period last year, while bond sales were the second-highest on record, according to data compiled by Bloomberg.
Bankers say that with a good pipeline of deals to work on, activity should increase further.
Globally, economic growth and relatively cheap funding have encouraged firms to buy rivals. In the Middle East, lower oil prices are prompting governments to seek external funding from bond and asset sales.
IPOs raised $3.2 billion in the first quarter, making it the most active start to a year since 2015, the data show. Completed mergers worth $4.2 billion exceeded the $3.6 billion a year earlier.
“Momentum that built up over the course of 2017 continued into Q1 2018 with a number of successful debt and equity issuances,” said Matthew Wallace, head of Global Banking for the Middle East, North Africa and Turkey at HSBC Holdings Plc.
“The primary driver is investor demand. We continue to see high levels of flows into global emerging market funds, with investors drawn to the strong growth prospects for the region.”
Saudi Arabia is embarking on an economic overhaul that includes the sale of a stake in oil company Saudi Aramco - that could be the largest IPO ever - and the privatisation of businesses including the stock exchange, power plants and football clubs.
Energy Minister Khalid Al-Falih has hinted that the share sale, which Saudi officials have said could value the company at $2 trillion, may not occur until next year. Elsewhere, Abu Dhabi has been merging banks, sovereign wealth funds and is also looking to sell some of its investments.
Abu Dhabi sovereign fund Mubadala Investment Co. is planning the IPO of Emirates Global Aluminium this year, and potentially one or two other companies, Chief Executive Officer Khaldoon Al Mubarak told Bloomberg in February.
Meanwhile, GEMS Education, the private school operator backed by Blackstone Group, has hired banks for a potential listing this year, people familiar told Bloomberg in December.
“A number of sizeable equity capital market and M&A deals are being contemplated,” said Faisal Rahman, co-head of the financing and solutions group for Central and Eastern Europe, Middle East and Africa, at Deutsche Bank. “Timing is a bit uncertain, but we expect 2018 to be a busy year.”
Some of the biggest equity deals this year have been in Africa. Steinhoff International Holdings NV raised 7.1 billion rand ($596 million) by divesting a stake in South African financial services firm PSG Group Ltd, while Cape-Town based insurer Sanlam Ltd. raised 5.7 billion rand selling new shares.
More deals look set to come from Africa. Nigerian energy conglomerate Sahara Group said it revived plans for a share-sale last month, while the operator of Johannesburg’s stock exchange expects improved sentiment following Cyril Ramaphosa’s election as South African president to encourage companies to sell shares in initial public offerings this year.
Citigroup Inc. is expecting to see its best year yet for investment banking in Africa, Miguel Azevedo, Citigroup’s head of investment banking for the region, told Bloomberg in February.
Sovereign bonds helped drive debt issuance in the Middle East and North Africa to more than $100 billion, its highest ever, according to data compiled by Bloomberg. Deal volumes in the first quarter of this year didn’t match 2017 levels, but several large deals have yet to occur, including expected bond sales by Saudi Arabia and Qatar.
“Debt capital markets have witnessed another great start of the year,” said Sjoerd Leenart, head of Global Corporate Banking and regional head for Central & Eastern Europe, Middle East and Africa at JPMorgan Chase & Co. He expects to see M&A to pick up in the second half of the year, and said “the IPO pipeline is strong and should finish the year on positive momentum.”
A period of slower economic growth in Saudi Arabia is also helping to make buyouts in the the region’s largest economy more viable, as business owners accept lower valuations, bankers say.
“Saudi Arabia has always been a tough place to do transactions because of the difference between sellers and buyers’ expectations,” said Yaser Moustafa, senior managing director at private-equity firm NBK Capital Partners. “Now we are seeing people consider what I’d call ‘fair valuations’ for the first time.”