GCC's leading investment banks predict a solid bounce-back for regional mergers and acquisitions (M&A) in H2 2010, with bulls suggesting volumes could reach $100 billion in 2011. Gulf M&A activity shows its first signs of life after two years marked by cost cutting and balance sheet repair, the first GCC M&A Barometer survey conducted by Zawya, the online business provider and M Communications, the international financial communications agency, reported on Tuesday. Over 80 percent of investment banks expect the downward trend since 2007 to reverse in 2010, with total M&A value to reach $25 billion. A significant proportion of the participants are bullish on their outlook for 2011. Some expect GCC M&A volumes to hit $100 billion for 2011. Saudi Arabia, the Middle East's largest economy, is expected to deliver the most deals according to the report, followed by the United Arab Emirates and Qatar. Historically, GCC M&A has constituted up to 10 percent of global M&A activity. This year it has reached 4 percent, compared to Europe's 15 percent share. However, led by the $10.7 billion deal between India's Bharti Airtel and Kuwait's Zain for Zain's Africa services, the M&A sector now has an air of cautious optimism as key corporates' first quarter earnings show a return to double digit growth. Chief executives may now seek growth through acquisition strategies. The GCC M&A Barometer's findings point away from distressed sectors such as real estate and focus on industries such as healthcare, financial services, energy and basic materials. Geographically, the majority of M&A are expected to take place within the GCC area, with Saudi Arabia leading the UAE and Qatar. Eighty-five percent of bankers expect mid-market transactions to dominate the M&A market in 2010. The GCC M&A Barometer also confirmed a number of barriers to increased M&A activity in the region: a continuing disconnect between corporates' own growth expectations and those of the market; “chief executive's egos”; and a lack of liquidity - most deals are expected to be financed through a combination of debt and equity. Commenting on the survey, Jean Marc Paufique, head of Zawya's Professional Investment Division, said “it does appear that the corner has turned with a large majority of our panel of leading bankers forecasting an increase in M&A activity for 2010 with further acceleration in 2011.” Nicholas Lunt, Gulf managing director of M:Communications, added that “there is still a long way to go before we return to the heady days of the mid-decade, but the worst seems to be over in this region.” Merger and acquisition activity in the Arab Gulf is recovering after two years of retrenchment with up to $25 billion of deals seen this year, according to investment banks surveyed by leading business information service Zawya.com. “Bankers are bullish that this year will see greater appetite for M&A compared to the last three years,” said a report released Tuesday by Zawya.com, in partnership with M Communications. The Zawya report, gathered through a survey of 27 investment banks in banks, highlights telecommunications and financial services as two industries in the Middle East that will see more consolidation. The Middle East has seen the $10.7 billion deal between India's Bharti Airtel and Kuwait's Zain for its African services unit. Despite Zawya.com's rosy assessment of the market some regional bankers still remain concerned by the economic and political challenges that may hinder buyout activity and deal flow in the Middle East. M&A deals announced in the Middle East and North Africa region dropped by 67 percent in value to $34 billion last year, down from $102 billion a year earlier, according to Ernst & Young in a report last month. The number of announced deals dropped from 465 in 2008 to 353 in 2009, a decline of 24. The report didn't provide figures for the Gulf region. “M&A transactions in the Middle East are particularly challenging as it is not the only economic aspect but also the political dimensions that need to be taken into account,” Waleed El Mir, managing director, head of Middle East and Turkey Investment Banking and Capital Markets at Bank of America Merrill Lynch, said. The recent collapse of a planned 70 percent stake sale of Dubai's Arabtec Holding to Abu Dhabi's Aabar Investments highlighted some of the challenges that remain. Bankers in the region are also concerned that a lack of liquidity could hinder the resurgence of M&A activity, especially for companies in the mid-market as they are need more capital.
