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Sat 11 Jul 2015 09:34 AM

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UAE, Saudi forecast to see strong IPO, M&A growth to 2020

Law firm Baker & McKenzie named both countries in world's top 10 for fastest M&A and IPO growth

UAE, Saudi forecast to see strong IPO, M&A growth to 2020
DFM, Dubai investors, Dubai stock market, Dubai IPO

The UAE and Saudi Arabia have been named among the world’s top 10 countries forecast to experience the fastest mergers and acquisition (M&A) and IPO growth until 2020, according to global law firm Baker & McKenzie.

After a long and stuttering recovery from the global financial crisis, the forecast predicts an uptick in global transactional activity exceeding $3.4 trillion in 2017, based on global economic activity increasing to an average growth rate of 2.9 percent percent per year over the next three years.

The report indicates that M&A activity in the UAE will rise from $2.2 billion in 2014 to $6.8 billion in 2015. The forecast also shows that deal activity will stabilise from 2016 to 2020, albeit with a peak of around $5.7 billion in 2018. 

"Strong M&A activity in the UAE in the first half of 2015 is expected to result in a significant increase in the value of completed M&A deals by the end of the year compared to 2014, despite the volume of deals remaining relatively flat," said Will Seivewright, corporate/M&A partner at Baker & McKenzie Habib Al Mulla, based in Dubai.

"We expect M&A transactions to peak in 2018 before slowing as part of a predicted downturn in global financial markets.”

The report said domestic IPO issuance is projected to fall in the UAE from $3 billion in 2014 to $581.7 million in 2015, before peaking at $1.2 billion in 2018.

In Saudi Arabia, it is expected to fall from $6.4 billion in 2014 to $1.8 billion in 2015, before peaking at $2.7 billion in 2019.

“Despite these dampened prospects, Saudi Arabia is off to a strong start this year, driven by an increase in domestic M&A deals,” said George Sayen, head of corporate practice group at Baker & McKenzie's associated firm in Riyadh.

“The opening of the Saudi stock exchange to foreign investors could also attract foreign capital inflows and increase cross-border activity.”

The report said governments in the UAE and Saudi Arabia are diversifying their economies and facilitating job creation to reduce the impact of oil price volatility and grow their non-oil economies.

Ultimately, this will allow the GDP in both countries to grow with an annual rate of 3.5 percent and 3.2 percent respectively, compared to the global average of 3 percent, the report added.

The report also included a ‘transaction attractiveness’ index by country based on past transactional activity and a weighted average of 10 key economic, financial and regulatory drivers of M&A and IPO activity.

The UAE is forecast to rank higher than the global average with key drivers such as ease of doing business, freedom to trade and legal structure.

“We expect the increased interest from global private equity investors to continue, notwithstanding the lower oil prices and regional instability. While the UAE continues its efforts to grow its non-oil economy and works towards hosting the World Expo in 2020, regional demographics will continue to have the biggest impact on growth and deal activity, particularly in respect of social infrastructure transactions,” added Seivewright.

Globally, the report forecasts show completed global M&A transactions rising to $2.7 trillion in 2015 before accelerating to $3 trillion in 2016 and $3.4 trillion in 2017.

The outlook for global IPO transactions suggests that overall IPO activity will peak in 2017 with a split of $233 billion and $89.7 billion between domestic and cross-border activity.

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