beyondbrics

Mergers and acquisitions have always proved an elusive quarry for the Gulf’s bankers, but this may be changing. In the first quarter of this year, mergers and acquisitions in six Gulf Cooperation Council countries has amounted to $3.6bn, a figure close to the total amount of M&A activity for 2009, according to research released today.

And this first quarter figure, compiled by Mergermarket statistics, doesn’t even include the Bharti Airtel mega acquisition of Kuwaiti Zain’s African telecoms operations, valued at $10.7bn, to be completed later this year.

Are Gulf countries bucking the trend, and is this evidence of more merger activity a sign of things to come?

Pre-financial crisis, oil-rich sovereign wealth funds splashed their cash on trophy assets abroad, but the market for inward investment into the six Gulf Cooperation Council countries and pan-GCC mergers proved harder to crack.

At the height of the boom, M&A activity from the region accounted for only 10 per cent of global activity, dropping to 3 per cent last year.

Now, after a couple of parsimonious years, $25bn of transactions are being forecast for the region this year alone. This is according to the M&A Barometer, launched today by Zawya and M:Communications.

The barometer is based on the views of top bankers at 27 institutions surveyed in the region who believe that the 2010 will witness higher volumes and 2011 could be a bumper year.

But, is there any evidence behind this self-serving forecast?

The survey indicates that bankers are looking to hire specialists to meet the expected demand, with the expectation that Saudi Arabia, home to the Middle East’s biggest economy, will lead the M&A activity, followed by Qatar and the United Arab Emirates, where Abu Dhabi, the oil-rich capital, is expected to be on the prowl for acquisitions while debt-strapped Dubai will be the target for vultures.

The sectors in focus are energy, health, education, telecoms and consumer goods.

One local banker predicts that if regional players decide to look outside, their focus will primarily be on investments in China and India.

Few can argue that international investments will continue among the sovereign wealth funds, especially given the gas windfall expected in Qatar over the coming years. But some of Abu Dhabi’s investment vehicles have shown signs of reining in their overseas spending ambitions amid some belt-tightening and consolidation at home.

All the fundamental reasons hold true: there is a desperate need for consolidation in often crowded sectors. But the jury is still out on whether the cold realities of economic decline can trump the entrenched shareholder interests and allow the pace of the region’s M&A market recovery stand up compete at global levels.

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