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Middle East M&A Activity On the Rise in Q2

M&A and Corporate Activism

By Houda Bouhayat  |  July 25, 2018

M&A in the MENA region showed signs of recovery in the first half of 2018, despite continued geopolitical risks. This increased activity has taken place as Gulf Cooperation Council (GCC) countries continue efforts to diversify their economies away from oil in order to stimulate investment. More specifically, the UAE and Saudi Arabia recently announced a new five-year joint strategy, called “Resolve.” This strategy gives the countries a common objective to implement 44 joint projects around agriculture, renewable energy, and small and medium-sized enterprises.

These efforts are already starting to reflect positively in the economic data. Indeed, every country in the MENA region saw its real GDP increase in the first quarter over last year, except for Bahrain:

1Q Real Changes vs Year Ago Percentage

M&A Activity Picked Up in the Second Quarter

The M&A market in the second quarter registered seven more deals than the first quarter.

MEAMA Deal Volume

At the same time, total transaction value exploded in Q2 2018, coming in at just over $8.5 billion, up by close to 200% over Q1 2018: MEA Transaction Value in Millions

Looking at the history of second quarters over the last five years, Q2 2018 was the weakest second quarter with 49 deals; the highest number of deals was 88 in Q2 2016.

Five Year Comparison of Q2 Deal Volume

Sector-Level Breakdown and Largest Transactions

Ranking sectors by value, Consumer Services (specifically the portion related to Hotels and Cruises) came in first with $5.6 billion, all coming from a single deal. In second position was the Industrial Services sector with $1.2 billion across six deals. The third position was filled by the Transportation Services sector, with $582 million across six transactions.

Q1 Transactions By Sector

The largest transaction completed in Q2 2018 was between a private group led by state-owned Public Investment Fund in Saudi Arabia, GIC Pte Ltd, Crédit Agricole SA, Amundi SA, and Colony NorthStar Inc., which acquired a 57.8% majority stake in AccorInvest SAS from Accor SA for $5.7 billion in cash. The acquisition was in line with Accor SA's strategy to reorganize its real estate holdings in response to stifling competition from online digital booking platforms. In addition, the divestment is expected to free up cash for Accor to fund new developments.

The second largest deal was between National Energy Services Reunited Corp and NPS Energy DMCC, trading as National Petroleum Services, a portfolio company of Fajr Capital Ltd and Waha Capital PJSC (Private Equity), for $553.6 million in cash and stock. Under the terms of transaction, National Energy Services Reunited Corp paid $442.8 million in cash and $110.8 million in stock to NPS Energy DMCC. Following the transaction, National Energy Services Reunited Corp will combine the company with Gulf Energy SAOC. The primary operating locations will be in Dammam, Saudi Arabia, Muscat, Oman and Dubai, UAE, with local headquarters in Houston, Texas.

The third largest deal was signed between KCA DEUTAG Drilling Group Ltd, a subsidiary of KCAD Holdings Ltd, when it acquired the business and assets of Omani & Saudi Arabian Businesses from Dalma Energy LLC for $320 million in cash and stock. Under the terms of transaction, KCA DEUTAG Drilling Group Ltd paid $100 million in cash and $220 million in stock to the shareholders of Dalma Energy LLC which is ultimately owned by Abdulhadi A Al Qahtani Sons Group. The acquisition would allow KCA DEUTAG Drilling Group Ltd to expand its business.

Deal Breakdown by Country

The country registering the highest number of deals in Q1 2018 was the UAE with 16 deals this quarter with a total value of $1.07 billion.

There were 18 inbound transactions out of 49 deals, representing 38% of the total number of transactions:

Q1 Outbound transactions

The UAE led with five deals this quarter, followed by Jordan and Saudi with two deals each. Inbound Transactions by Sector

In Q2 there were 32 outbound closed deals, with a total value of $8 billion. The UAE again came in first with 11 deals, followed by France and the United States with three deals each: Number of outbound transactions by region

 

Houda Bouhayat

Senior Client Consulting Manager, MEA IM Consulting

Houda joined FactSet in 2010 and is based in Dubai.

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