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74% of
MENA respondents see an improvement in their local economies
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Boardroom
agendas in MENA have an increased focus on cost optimization and operational
efficiency
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Announced
deal values in MENA decrease from US$11.2b in Q1 2013 to US$7.1b in Q1 2014
Dubai 29 May
2014: According to EY’s MENA Capital Confidence
Barometer (CCB), MENA confidence in the global and local economies is at a
two-year high, with 61% saying the global economy is improving, up from 32% six
months ago and 74% seeing improvement in the local economies, the highest
number in the past two years. Significantly, just 3% say the economy is
declining, down from 15% six months ago and 14% a year ago.
Phil Gandier,
MENA Head of Transaction Advisory Services,EY said: “As a blend of frontier and
emerging markets, MENA countries possess a number of unique advantages. Cash
levels in MENA businesses continue to remain high, this coupled with a
diminishing valuation gap between buyers and sellers could lead to more deal
closures over the coming months. Additionally, many MENA companies have
promising deal pipelines which could be a catalyst for more transaction
activities.”
The MENA CCB is
a bi-yearly report which gauges regional corporate confidence in the economic
outlook and identifying boardroom trends and practices for businesses to help
manage their capital agendas. The survey respondents are senior executives from
large regional companies and the survey is conducted by the Economist
Intelligence Unit (EIU).
Strong evidence
that the recovery is real can be found among respondents’ perception of various
financial indicators. MENA executives are substantially more upbeat about local
market conditions than they were in October, with 78% positive about corporate
earnings — more than 20% points higher than six months earlier. Similarly, 60%
are optimistic about equity valuations — the highest number in the past year.
Q1 MENA M&A
performance and trends
Announced deal
values in MENA decreased from US$11.2b in Q1 2013 to US$7.1b in Q1 2014, a
decrease of 36%. In Q1 2014, 90 deals were announced as compared to 109 deals
in Q1 2013.
“Due to
boardroom agendas having an increased focus on cost optimization and
operational efficiency, MENA executives report that acquisitions are expected
to make up a smaller portion of revenue growth value for the current fiscal
year. MENA companies are ,however, still overwhelmingly upbeat about the
outlook for M&A volume growth over the next year, with 75% expecting to see
an improvement in M&A volume growth,” said Anil Menon, MENA M&A Leader,
EY.
MENA companies
report a larger deal pipeline than their global counterparts, with 38%
reporting five or more deals on hand for the next year, compared with just 15%
of global respondents.
“When it comes
to the propensity of MENA companies to engage in M&A, there are significant
disparities across individual sectors. Companies in the automotive, life
sciences and mining and metals industries report the highest appetite to
acquire, while those in the oil and gas and power and utilities industries stated
a lesser acquisition appetite,” said Anil.
Credit
availability is stable as cash dominates deal finance
Cash is clearly
the preferred form of M&A financing for MENA companies, with 69% saying it
would be their primary source; this is significantly higher than the 36% of
global companies who prefer cash.
Over half of
MENA respondents (53%) say they are confident in credit availability at the
local level, equivalent to levels a year earlier, and down from 59% six months
ago. Yet, the number reporting a decline in credit confidence has also fallen
steadily to 6% in the current survey, compared with 10% six months earlier and
12% a year ago.
“MENA continues
to demonstrate its prominence as a key liquid market where deal financing does
not hold companies back when it comes to deal execution. MENA executives
generally report stable access to credit, and strong liquidity levels make cash
the preferred form of deal financing for a large majority of those surveyed. Encouraged
by strong business and economic confidence locally, plus an increase in
corporate earnings expectations, the outlook for MENA deal volumes remains
optimistic,” concluded Phil.
