Robust M&A prospects, but Saudi doubts creep in

The man from Kroll was not mincing his words. “We’ve seen an increase in work related to fraud and corruption,” he stated in the context of the Saudi market. It was an illuminating reality check.

He was speaking at the end of one-day conference in Dubai on the prospects for mergers and acquisitions (M&A) at what should really have been the “dead zone” session – the panel at the very end of the day just as the participants are whetting their appetites for drinks and dinner.

But the session was on the hot topic of the day – M&A in Saudi Arabia on the very day the kingdom announced the new rules that should, in theory, throw the market open to foreign involvement. So there was a surprisingly focused mood.

The organiser, Mergermarkets, had obviously judged pretty shrewdly that Saudi was what people wanted to hear about, and kept its powder dry to the end.

The Kroll position actually summed up the approach of most speakers during the day: some quite lofty theoretical analysts of corporate finance trends interspersed with some pretty hard-nosed assessments of the realities of doing corporate business in the region in 2015.

Launching the global capital barometer index, Phil Gandier, head of transaction advisory services in the Middle East for EY, could hold out the prospect of a “robust” year for M&A in the region. A majority of financial executives expected their deal pipeline to increase over the next 12 months, and were also looking at bigger deals this year, especially in the energy sector.

But Mr Gandier could also point to the fact that regional optimism, about the economy and therefore about transactions, is on the wane compared to global trends. There was, as he put it, a “downwards tempering of confidence” in the M&A field, with more businesses looking to “reduce costs and improve margins”.

There was also some confirmation for the general trend that arose after 2011: that regional corporations in the Middle East and North Africa were more likely to invest at home than abroad. A clear majority were looking either at their domestic market, or in their immediate regional market, for M&A transactions, rather than farther afield.

When they were looking abroad, Europe was the destination of choice for regional deal-doers, apparently contradicting the “tilt to the east” theory. Globally, the Europeans were most likely to be looking to the Asian markets for transactions, while the Americans were still pretty much focused on their own back yard and some business in Europe.

Will Seivewright of the law firm Baker & McKenzie, which has invested plenty in its regional M&A capabilities, detected an increased interest in the region from global private equity investors, a “hugely positive” development given lower oil prices and regional instability.

The dip in M&A transactions in the first quarter of 2015 was only to be expected, he said, after the comparatively high levels of late 2015. There was still demand for deals in social infrastructure, as well as in the retail and hospitality sectors.

The panel on cross-border M&A was lively and optimistic, and confirmed again that Africa is the preferred destination for many acquirers in the UAE. “Dubai is the capital of Africa” was the verdict from one of the panellists, testimony to the emirate’s “hub” status on the “south-south” route from east Asia to Africa. But there was still plenty of interest in south Asia too.

And so to Saudi Arabia. The details of the opening up planned for June just began to filter through as the last panel of the day was wrapping up, and all were agreed it was an exciting moment in regional M&A history when the biggest market appeared to open up to foreign involvement.

But then, led by Kroll, the doubts seemed to creep in. Did the Saudis mean it? How easy would it be in practice for foreigners to do business there? Might it all turn out to be not worth the trouble?

In the M&A field, there’s no satisfying some.

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