Gulf Arab bankers, hit by a dearth of deal flows so far in 2011, are hoping sovereign wealth funds will drive a second-half rebound powered by a buoyant oil price and an easing in political tensions.
The state-owned funds, allocators of the state's excess investment capital, have benefited from a 20-percent surge in crude over the past year.
They are expected to aggressively scout for deals after lying low earlier this year when protests roiled the Middle East, driving regimes out of power in Tunisia and Egypt and provoking crackdowns in Bahrain and other states.
"Most of the sovereign wealth funds in the region are very liquid and there have been few large deals in the first half," said Waleed El Amir, Middle East North Africa (MENA) investment banking head at Bank of America-Merrill Lynch.
"We should see volumes pick up considerably in the second half."
Mergers and acquisitions (M&A) in the MENA region hit a rough patch in the wake of the financial crisis as an era of leverage-led buyouts waned and several high-profile investments suffered heavy losses.
The amount of fee income raised by investment banks from mergers and acquisitions activity stood at $280.8m in the first half of 2011, down nearly 30 percent from the same period last year, according to Thomson Reuters data.
Total value of completed deals stood at $14.18bn, a 65 percent slump versus the year-ago period.
JP Morgan Chase led the charts for M&A fees in the first half, while BofA Merrill advised on the largest number of completed deals in the region, data showed.
The sovereign funds in Qatar and Abu Dhabi are likely to lead outbound M&A, attracting bankers who pitch everything from cash infusions into stricken financial institutions to buyouts of football clubs and stakes in luxury carmakers .
Abu Dhabi's IPIC, with a mandate to invest in the energy sector outside the emirate, took over Spain's Cepsa in a $5bn deal earlier this year, while Qatar bought 6.16-percent stake in Spanish utility Iberdrola SA for $3bn.
"Qatar are the big fish in the pond. There are very few investors in the world today who have $30-$40bn to deploy in deals every year," said one banker who does business with the Qatar fund.
"Everyone, from ministers to diplomats, go to them pitching like investment bankers."
Bankers say several M&A mandates which were delayed or postponed during the crisis may get revisited as political conditions begin to improve in the region.
"One of the main factors driving the M&A market is confidence. What we have seen is international investors being more comfortable with the regional story," Omar Mehanna, managing director and head of advisory for MENA region at HSBC said in an email.
Two stumbling blocks to dealmaking - unwillingness to give up control and high price expectations - could also disappear as sellers seek to deleverage urgently. This could, in particular, push mid-sized deals between companies based in the region.
UAE telco Etisalat scrapped a $12bn offer to buy a controlling stake in Kuwaiti rival Zain earlier this year, citing Zain's divided board, extended due diligence and regional unrest.
But HSBC recently advised on Dubai-retailer Axiom Telecom's 35-percent stake sale to Qatar's Mannai Corp , and Abu Dhabi Commercial Bank in June agreed to sell its 25-percent stake in Malaysian lender RHB Capital to Abu Dhabi investment vehicle Aabar.
"Competition in the region is fierce. A lot of the international banks have cut down on size but you still see the same names when you go to pitch ideas in the market," said BofA Merrill's El-Amir.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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