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Mon 21 Mar 2011 02:35 PM

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Middle East unrest to hit regional deals, says StanChart

Deal activity in the region will be flat versus last year as Arab uprisings take toll on sentiment

Middle East unrest to hit regional deals, says StanChart
Middle East M&A values fell sharply during and after the financial crisis with buyers demanding better due diligence and sellers sticking to valuations at pre-crisis levels

Political unrest plaguing the Middle East and North Africa (MENA) region
will delay planned deals with activity seen flat versus last year, Standard
Chartered mergers & acquisitions executives said.

Ralf Pilarczyk, regional head of M&A, Standard Chartered MENA and
Apoorva Shah, managing director M&A, Standard Chartered, said the current
unrest has quelled appetite for activity and more deals may be delayed despite
the region offering immense potential over the long-term.

"The deals that are on the radar right now may get announced but you may see a delay. With that in mind, activity being flat would be a possible outcome," Shah said.

Middle East M&A values fell sharply during and after the financial crisis with buyers demanding better due diligence and sellers sticking to valuations at pre-crisis levels.

However, most bankers had been optimistic of a rebound in activity heading into 2011.

The value of deal activity in the region on average was expected to rise 20 percent this year to between $28bn and $30bn, according to a banker's survey released earlier this year.

But the unrest rocking the region has changed the landscape.

The UK lender aims to build on its global footprint which spans Asia, Africa and the Middle East, the executives said, adding that more Middle Eastern institutions were looking at emerging markets for deals.

"In terms of regional activity, we also see any increased interest when it comes to cross-border deals not only in the US or Europe but also towards Asia and Africa," Pilarczyk said.

The bank is also eyeing several fragmented industries in the region - such as healthcare, power and education - which are ripe for consolidation, the executives said.

Completing deals in the region still faces several constraints including reluctance of sellers to lose control, value gap between buyers and sellers and a clear disinterest to depart with trophy assets, the executives said.

Dubai, which is emerging from a crippling debt crisis, is restructuring state-linked firms and will need to make asset sales to repay creditors of its Dubai World conglomerate.

Bankers in the region were expecting to generate fees from restructuring-related M&A activity, but few deals have been announced yet as sellers have bought more time to restructure debt from banks and are waiting for asset values to rise.

"There is a certain lack of willingness here in the region to face difficult decisions and restructurings come along with making those difficult decisions," Pilarczyk said.

On Saturday, UAE telecom firm Etisalat scrapped its $12bn offer to buy a controlling stake in Kuwaiti rival Zain, citing Zain's divided board, extended due diligence and regional unrest.

"The Zain/Etisalat deal clearly shows how difficult it is to do an M&A deal in this part of the world," said Pilarczyk.

Regionally, the UAE still accounts for a significant part of the overall M&A space but Qatar and Saudi Arabia are also gaining prominence, according to the executives.

"Within MENA, the fee value for M&A in broad terms is 40 percent UAE still. Getting deals done in Saudi is quite difficult but it's the elephant in the room. Qatar clearly is on an outbound buying spree," Shah said.

M&A fees accounted for 47 percent of the overall activity in 2010, down from 55 percent in the previous year.

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atul 9 years ago

Only SCB/HSBC would see deals in 2011

One word to describe the MENA scenario is "Uncertainity" and no one bets money in uncertain times. With unrest spreading across MENA, money gets sucked out by equity diluation or withdrawn, withheld. Japanese are likely to withdraw money from international stock markets/institutions for resconstruction, it all means bleak opps. for financial sector in MENA and US, as well.Uncertianity is likey to persist beyond 2011, unless USA intervenes in MENA "right now" , restores order,"end-to-end" which includes seeing that the alternative government gets installed like it is overseeing in Egypt.

Hate it or love it USA is an indispensable nation. All nations need USA. And Hillary will / must step in MENA soon.