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MENA M&A

REGIONAL REPORT 2014


In association with:

MENA M&A REGIONAL REPORT 2014

SIGNS OF LIFE IN MENA M&A


POLITICAL INSTABILITY AND A MORE INSULAR APPROACH BY SOVEREIGN WEALTH FUNDS HAVE DENTED M&A ACTIVITY IN THE MIDDLE
EAST AND NORTH AFRICA, BUT THERE ARE SIGNS THAT THE CYCLE IS TURNING WRITES DAVID ROTHNIE.

These are uncertain times for M&A bankers in the Middle


East and North Africa, a region where deal-making peaked
at $150bn in 2007 and has been declining ever since. While
the regions IPO markets have been in rude health, M&A
deal-making has lagged. So far this year, deals in MENA
have reached US$50bn, putting it on course to match the
US$53bn announced in 2013, which was the lowest level in
a decade, according to data from Thomson Reuters.
There has been a timid rebound in M&A across the
Middle East and Africa in 2014 said Alberto Palombi,
global head of sovereign wealth funds and head of MENA
Investment Banking at UBS in Dubai. While activity has
shown a marked improvement over 2013, we dont expect
a rush of activity in 2015 particularly given that the recent
fall in oil prices may have removed some of the optimism.
In fact plummeting oil prices, which fell 35% between
October and the end of November, have already put the
brakes on the M&A market. On December 1, UK listed
Dragon Oil, a unit of the Emirati state-owned Emirates
National Oil was forced to drop its 510m bid for rival
Petroceltic, a Dublin-based oil and gas exploration and
production company. Dragon Oil now conrms that, in the
light of prevailing market conditions, it no longer intends
to make an offer for Petroceltic, the company said in a
statement.
This blow to deal-making came after energy and power
had proved to be the life-blood of the M&A recovery,
accounting for US$11bn of M&A activity compared with
US$4.8bn in 2013 as regional players looked to build on
the global stage. Energy-focused players are looking to
diversify and we anticipate outbound M&A in the energy
sector, said Francisco Abularach, head of CEEMEA M&A
at Citigroup.
In addition to Dragons abortive bid, the two biggest
deals in the sector involved cross-border global deals
by Middle Eastern sovereign-linked natural resource
companies putting excess capital to work. In April, Energy
Investments Global Ltd (Bidco) of Qatar, a new company
formed by Al Mirqab Capital bought UK listed oil and
ANNUAL VOLUMES - MENA TARGETS
VALUE US$bn

NO OF DEALS
800

35,000
30,000

gas exploration and production company, Heritage Oil


for US$889m. Meanwhile, in October, Kufpec Canada,
a unit of Kuwait state-owned Kuwait Petroleum Corps
Kuwait Foreign Petroleum Exploration Co subsidiary paid
US$1.3bn for a 30% stake in Duvernay Oil Corp, a Calgarybased oil and natural gas exploration and production
company, from Chevron Canada.
Middle Eastern states are cash-rich but in many cases
have a relatively small population so there is only so much
in terms of resources that they can put back into the local
economy. So it makes sense for them to look after their
economic well-being by making overseas acquisition, said
Patrick Gahan, head of M&A for CEEMEA at Barclays.

OIL AND GEO-POLITICS


The drop in oil prices has come as an additional
unwelcome shock after ongoing political instability
following the Arab Spring had already reduced M&A
activity across the Middle East in recent years. Aside from
the uncertainty, one of the side-effects of the turmoil
has been a move by governments across the region to
look to deploy resources domestically to stem upheaval.
Many of the regions sovereign wealth funds shifted their
deal-making strategies away from the sort of high-prole
international M&A that has accounted for some of their
deal activity in the past, focusing instead on domestic
political priorities.
The pick-up in violence Iraq, the Syria conict and
regime-change all kept a lid on deal-making condence in
2014. Meanwhile, intra-regional tensions reached a head
between Qatar and Saudi Arabia over Qatars continued
support for the Muslim Brotherhood, the Islamist political
group behind Egypts revolution 0f 2011. Such tensions
have made governments more fearful of domestic
instability, pushing M&A down the agenda.
Several Middle Eastern governments have lately
focused their efforts on how to deploy more cash within
their own countries and hence external M&A has slowed
down as a result, said Shailesh Doshi, co-head of
corporate and investment banking coverage for the GCC
at Deutsche Bank. A more inward-looking approach has
been adopted by the governments sovereign wealth funds,
which are among the worlds biggest institutional investors
and which began branching out in M&A with a series of
acquisition of stakes in companies towards the end of the
last decade.

25,000
700
20,000
15,000
600
10,000
5,000
0

500
2011

* Jan 1 to Dec 1 2014


Source: Thomson Reuters

2012

2013

2014 YTD*

INWARD-LOOKING
Now, SWFs may focus efforts closer to home as they look
to build their domestic economies to benet the broader
population. As a consequence of this refocusing, we
expect further in-country consolidation to take place,
added Doshi. At the same time, they are shunning the
West, which is failing to produce economic growth.
Instead, bankers are hoping that the growing number
of local companies can provide M&A opportunities in the
coming months. The Middle East has long been a capitaldriven M&A market, whereby big State-backed companies
In association with Merrill Datasite December 2014

MENA M&A REGIONAL REPORT 2014

Financing markets are back and strong, there is no


lack of liquidity for M&A deals
drive activity through the deployment of cash reserves,
said Barclays Gahan. But we are starting to see the
emergence of mid-cap M&A as local champions, not just
State champions, become active.
It is always dangerous to apply a one-size-ts-all
approach to the region, and the lack of a uniform
regulatory regime has acted as a brake on the
development of cross-border intra-regional deal-making.
But there are signs of a change. There is a growing
number of small private companies that have reached
a certain size and are now looking for outside capital
to fund the next stage of their development, said
Gahan. For example, at the end of April Samena Capital
Management bought a 30.6% stake in Ras Al Khaimah

Ceramics, the biggest tile maker in the UAE for around


US$261m.
These are hardly mega-deals, but these transactions
could be a crucial step in the creation of a broader-based
M&A market. They are ideally suited to nancial sponsors,
which regard the UAE as an increasing source of deals as
the regions economies look to diversify away from energyrelated industries. Earlier in the year US private equity rm
Warburg Pincus made its maiden investment in the Middle
East when it purchased a majority stake in Mercator, a
Dubai aviation software company owned by Emirates
Dnata unit. Meanwhile, in March, US private equity giant
the Carlyle Group made its rst exit from Saudi Arabia with
the sale of its 30% stake in General Lighting Company to
Philips of the Netherlands.

BANKS OPEN FOR BUSINESS

MENA M&A BY INDUSTRY SECTOR 2014*


Real Estate 19.9%

Retail 0.9%
High technology 3.8%
Materials 4.5%
Financials 5.9%

Industrials 16.5%
Consumer 6.3%

Healthcare 7.4%

Media and
entertainment 11.8%

Telecommunications 11.5%
Energy and
power 11.7%

* Jan 1 to Dec 1 2014


Source: Thomson Reuters

While foreign multinationals and private equity rms are


looking more towards the Middle East to make similar
investments, their level of risk appetite will depend on the
level of unrest in the region. But banks are supportive of a
rebound in M&A.
Financing markets are back and strong, there is no lack
of liquidity for M&A deals, said Citigroups Abularach.
There is a lot of intra-regional friction and uncertainty and
that has led to a subdued level of activity. Looking ahead,
the headwinds will not be as severe. The IPO market is
in good health in Dubai, the regions capital markets hub,
while after years of retrenchment, international banks are
re-allocating resources and balance sheet to the region,
albeit on a selective basis.
The bulk of M&A activity continues to be transacted
by the regions SWFs, particularly those with interests in
energy and real estate. Qatar Investment Authority (QIA)
is leading the charge. The QIA made a name for itself
during the last decade for its stake-building in high-prole
Western companies such as the London Stock Exchange,
former UK mining group Glencore, and UK department
store Harrods.

MENA M&A BY INDUSTRY SECTOR 2013

NEW EMPHASIS IN QATAR


Consumer 3.0%
Retail 3.2%

Materials 27.0%

Industrials 4.0%
Healthcare 6.7%

Financials 8.0%

Telecommunications 17.3%
High technology 8.4%

Real Estate 9.6%

Source: Thomson Reuters

November 2014 In association with Merrill Datasite

Energy and
power 12.3%

Qatar is moving forward with a number of initiatives after


taking a pause following the abdication in June 2013 of
Sheikh Hamad bin Khalifa al-Thani, who handed power to
his 33-year old son, Sheikh Tamim. In November 2014, the
QIA made a 2.2bn offer for Songbird Estates, the listed
property company which owns Canary Wharf in which it
already owns a 29% stake. Songbird rejected the initial
approach which QIA made along with Canadian investor
Brookeld Property Partners.
But bankers say that Qatar has shifted its emphasis
away from splashy Western investments it could
abandon its bid for Songbird if the valuation it too high
to more strategic, collaborative deal-making and it is
increasingly diversifying its footprint in the US and Asia,
which will be a big trend for 2015.
Specically, the QIA has earmarked China as an
investment destination, although it is favouring
partnerships and stake-building ahead of full-blown M&A.
3

MENA M&A REGIONAL REPORT 2014

A small number of large transactions can easily


distort the picture
In October, Qatar Holding, a subsidiary of QIA, acquired
a 19.9% stake in Lifestyle International Holdings, a Hong
Kong-based owner and operator of departmental stores for
US$616.5m.
A month later it made a bigger statement when it
signed a joint venture with Citic Group to create a US$10bn
fund to invest across Asia. At the same time, it announced
it was expanding its ofces in Beijing and New Dehli and
opening an ofce in New York. Speaking at the signing
of the deal with Citic, Ahmad Al-Sayed, CEO of the QIA
which also made a cornerstone investment in the IPO of
Chinese internet company Alibaba said it is open to new
partnerships as we look to invest US$15bn-$20bn in the
next ve years.
The Qataris were also active at home, with the Labregah
Real Estate Company, a QIA subsidiary, paying US$2.5bn
for a stake in Doha-based real estate development rm,
Barwa Commercial Avenue Company.
Given the historically low levels of M&A in the Middle
East relative to Europe and the US, a small number of
large transactions can easily distort the picture, and in
2014 Qatar remained the most dominant force in Middle
Eastern M&A, accounting for almost US$18bn of M&A
activity, US$11bn of which it acted as an acquiror.

SWFS CAUTIOUS
But the regions other SWFs were more cautious, led by
a more circumspect view of the global economy, which
restricted many acquirers to deals in the energy and power
sector.
In the UAE, Dubai has put its past troubles behind it,
when a debt-fuelled real estate acquisition spree backred

spectacularly and that is resulting in some disposals, with


funds such as Investcorp and Dubai International Capital
looking to sell off foreign assets acquired during the boom
era following a rise in sell-side valuations. In April, DIC
sold Mauser, a German manufacturer and wholesaler
of packaging products to US private equity rm Clayton
Dubilier & Rice for US$1.6bn. Meanwhile in August,
Investcorp sold Berlin, a Chicago-based manufacturer and
wholesaler of rigid packaging products to a private equity
consortium that included Oak Hill Capital Partners.
In February, property developer Pearl Dubai sold assets
valued at US$1.9bn to Hong Kong-based Chow Tai Fook
Endowment Industry Investment Development (CTFE).
Bankers say there could be further assets on the block
in 2015 Dubai has a meaningful infrastructure spend
between now and 2020. The Emirate has learned from
the past and is no longer purely looking at debt nancing.
Instead we see them looking at potential IPOs of some of
their strongest entities as a solution, Doshi said.
Bankers say the strength of the IPO market will likely
dampen M&A activity in the short term as potential sellers
of assets opt for listings instead. In October, Emaar Malls
Group, a unit of the UAEs biggest-listed developer Emaar
Properties, completed the biggest IPO in Dubai since 2007.
Meanwhile, M&A activity is more domestic in nature and
based around deals that bring expertise into the Emirate.
In November, DP World unveiled the US$2.6bn acquisition
of Economic Zones World (EZW), a company providing
industrial and logistics infrastructure around its agship
Jebel Ali port in the United Arab Emirates.
According to the terms of the deal, DP World FZE is
acquiring EZW from Port and Free Zone World and will

MENA TARGET M&A - TOP 20 TARGET NATIONS


2014 YTD*
Nation

2013

Value (USm)

Mkt share (%)

No. of deals

Value (USm)

Mkt share (%)

United Arab Emirates

8,461.3

28.1

82

11,708.3

33.8

No. of deals

Qatar

6,044.6

20.1

19

615.8

1.8

Israel

5,523.4

18.4

92

5,808.2

16.7

142

Saudi Arabia

101

2,559.1

8.5

45

2,224.9

6.4

56

Kuwait

656.9

2.2

41

1,016.2

2.9

39

Bahrain

146.7

0.5

522.2

1.5

11

Iraq

113.9

0.4

26

68.3

0.2

29

Lebanon

90.0

0.3

42.0

0.1

74.1

0.3

36

53.2

0.2

43

Jordan
Iran

24.0

0.1

Syria

23.2

0.1

0.9

0.0

Yemen

22.4

0.1

0.0

0.0

Oman

8.1

0.0

15

140.2

0.4

22

Palestine

2.3

0.0

0.0

0.0

23,750.0

79.1

386

22,200.2

64.0

460

Algeria

3,201.9

10.7

10

191.2

0.6

Egypt

2,141.7

7.1

89

5,445.7

15.7

69

Morocco

926.9

3.1

16

6,563.9

18.9

18

53.4

0.2

288.1

0.8

12

North Africa

6,323.9

21.1

124

12,488.9

36.0

106

MENA Total

30,074.0

100.0

510

34,689.0

100.0

567

Middle East Total

Tunisia

* Jan 1 to Dec 1 2014


Source: Thomson Reuters

In association with Merrill Datasite December 2014

MENA M&A REGIONAL REPORT 2014

The next round of deal-making in the GCC could come from


countries which have not yet established themselves as M&A markets
delist its shares from the London Stock Exchange. Bankers
also believe there could be intra-regional consolidation
between Dubai Financial Market and the Abu Dhabi Stock
Exchange (ADX), as the two Emirates move closer together.

ABU DHABI MUTED


Deal activity has also been muted in Abu Dhabi, the
richest of the seven statelets that make up the UAE. The
Abu Dhabi investment authority (ADIA) hired a number
of former bankers in 2013 as it looked to boost its direct
investment expertise and rely less on external fund
managers. But this has not led to more active dealmaking.
Abu Dhabi nished an internal appraisal of its
investment strategy earlier this year, and bankers
expect it to start looking at making acquisitions to boost
its presence across a number of sectors. According
to its Vision 2030, it earmarked industries such as
semiconductors, aerospace and oil and gas for potential
acquisitions. Aabar, which rose to prominence with
structured equity transactions where it took stakes in
leading Western companies such as Daimler, has been
muted.
But bankers believe the next round of deal-making
in the GCC could come from countries which have not
yet established themselves as M&A markets. There
is an emerging trend whereby certain countries within
the GCC are looking at options as to how they can fund
their budgets amid falling oil prices. One consideration
amongst others could be the sales of assets, said Doshi.
Bahrain and Oman are seen as likely M&A hotspots
in 2015. In November, Bahrain Telecommunications,
a former state monopoly known as Batelco, hired Citi
to advise on the possible sale of its Jordanian mobile
TOP 20 MENA TARGET DEALS, YTD 2014*
Target Name
Target Nation

operator Umniah Mobile Co in a deal which could fetch


between US$500m and US$600m. Batelco bought
96% of Umniah for US$415m in 2006 but increased
competition and declining prots have prompted it to
seek growth outside its home market.
In 2013, Batelco acquired Cable & Wireless
Communications Monaco and islands divisions. Bankers
believe that the region could start to follow a trend set in
Europe and the US, where pure telecoms providers start
shopping for providers of content as growth in local mobile
markets falls away.
FIG activity is likely to be more active in 2015, as
international banks continue reduce their global footprint.
In August, Barclays completed the US$177m sale of its UAE
retail banking business; in December 2014, shareholders
of Qatari lender Doha Bank approved the purchase of the
Indian assets of HSBC Bank Oman for US$20.6m.
Meanwhile, insurance companies from Europe, Asia and
the US are among the 20 potential bidders in the sale by
Turkeys State-run Halkbank of its pension and insurance
arms. There is overcapacity in the banking market and
medium-sized Middle Eastern players are looking for
growth, which could bring consolidation, said Abularach.
There is cause for optimism in the Middle East, which
remains an important region for banks to cover, given the
sheer volume of capital ows. But M&A remains something
of a poor relation when compared with other investment
banking activities.
M&A is not going to be the most important product for
banks in the Middle East. But it continues to be a magnet
for global investors and companies looking to access the
deep pockets of the main SWFs in the region potentially
triggering M&A activity from those players abroad, said
UBSs Palombi.

Target Sector

Acquiror Name

Acquiror Nation

Value (US$m)

UAE

Transportation & Infrastructure

DP World Ltd

UAE

3,459.144

Orbit Showtime Network

UAE

Cable TV

Undiclosed PE Firm,US

US

3,200.000

Orascom Telecom Algeria

Algeria

Telecommunications

FNI

Algeria

2,643.000

Barwa Commercial Avenue

Qatar

Real Estate

Labregah Real Estate Co QSC

Qatar

2,477.907

Barwa City Real Estate

Qatar

Real Estate

Labregah Real Estate Co QSC

Qatar

2,080.558

Ormat Industries

Israel

Power

Ormat Technologies Inc

US

1,470.000

Lusail Golf Development

Qatar

Building/Construction & Engineering

Barwa International Co SPC

Qatar

681.889

Gamida Cell

Israel

Healthcare Equipment & Supplies

Novartis Pharma AG

Switzerland

600.000

Economic Zones World FZE

Andromeda Biotech

Israel

Pharmaceuticals

Hyperion Therapeutics Inc

US

570.510

Yanbu

Saudi Arabia

Petrochemicals

China Petroleum & Chem Corp

China

562.000

International Bank of Qatar

Qatar

Banks

Undisclosed Acquiror

Unknown

538.195

Cristal

Saudi Arabia

Metals & Mining

TASNEE

Saudi Arabia

481.523

NPS Energy DMCC

UAE

Oil & Gas

Investor Group

UAE

370.000

Centrale Laitiere

Morocco

Food and Beverage

Danone SA

France

347.283

Koor Industries

Israel

Telecommunications Services

Discount Investment Corp Ltd

Israel

326.815
300.000

Integra

Israel

Biotechnology

Guangxi Wuzhou Pharmaceutical

China

Commercial Intl Bank Egypt SAE

Egypt

Banks

Investor Group

US

298.503

Dr Erfan & Bagedo Hospitals

Saudi Arabia

Hospitals

Dallah Healthcare Holding JSC

Saudi Arabia

292.459

Al Wajeez Development

UAE

Power

Investor Group

UAE

285.877

Ras Al Khaimah Ceramics

UAE

Construction Materials

Samena Limestone Co

Cayman Islands

238.225

* Jan 1 to Dec 1 2014


Source: Thomson Reuters

December 2014 In association with Merrill Datasite

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