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M&A biggest catalyst for growth, expansion and business development

Al Mazaya Report says: Growing economic value of M&A deals in GCC region attributed to privatisation plans

 

M&A activities record $2 trillion in 2018

Major economies around the world are conducting more merger and acquisition (M&A) deals every year, which is one of the most prominent signs of economic mobility and investment attractiveness, indicating the ability of these economies to maintain high liquidity for investment activities and economic effectiveness.

Al Mazaya Holding’s Weekly Real Estate Report sees M&As accelerating worldwide, and they are expected to hit new highs by the end of the year to include the retail, health and service sectors at a time when a number of industries are undergoing major strategic shifts  to further adjust their financial position in an attempt to respond to technological changes, with  many firms around the world buying strategic assets to enjoy a better position and compete globally more effectively.

The report stresses that stimulus packages and economic pressure factors have generated many challenges and opportunities over the past few years, causing significant leaps and bounds on the pricing of real assets and those assets related to technology, thereby boosting the ability of many economies to carry out acquisitions and mergers on an unlimited scale.

However, these companies face financial difficulties and liquidity gaps as a natural result of the ups and downs witnessed by economic sectors. It should be noted here that the continuation of M&A transactions and the entry into discussions and studies within this framework can be seen as a positive sign for both the global economy and the local economies of countries concerned.

The report points to a significant increase in mergers and acquisitions in the region and globally. Current data indicate that the value of M&A transactions exceeded $56 billion in 2015, a 13% increase compared to the value achieved at the end of 2014; $50 billion in 2016; and $44 billion in 2017.

Performance indicators show that more than 50% of these transactions have been successful and have also contributed to the development of their markets as compared to those markets that do not carry out operations of this kind because they contribute in one way or another to boosting the performance of companies by 25% to 30% comparatively with other companies that do not engage in such activities. Mergers and acquisitions add a lot to companies, both in terms of raising the value of money in the markets, in addition to helping to expand abroad, which gives them new opportunities to invest through their presence in other countries and new markets.

M&A activities reached $2 trillion, a record level of transactions since the beginning of the year. These activities focused on primary sectors, including the industrial and transport sectors, as well as infrastructure, utilities, energy, real estate, finance and the electricity generation sectors. However, the technology sector is drawing the most of this type of transactions.

These sectors are expected to capture the highest value of acquisitions and mergers over the coming period, taking into consideration that the acquisition of modern technology has become the driving force behind a large number of mergers and acquisitions transactions until the end of the year.

M&A transactions have spread over all sectors, including the automotive industry where they valued around $66.7 billion in 2017 and a total of $67.7 billion in 2016 through the implementation of 654 transactions. China ranked first in terms of value, and the USA came second. The overall goal is to ensure the continuation of growth factors in the future and ensure the expansion of markets in a more efficient way.

The report addresses the challenges faced by the industry in the region, especially the difficulties faced by investors and owners, particularly those related to the evaluation of some sectors and the factors of real growth. The GCC governments in the meantime are bent on creating an investment-conducive environment in order to increase foreign direct investments (FDIs) by amending and updating their M&A and foreign ownership laws.

Saudi Arabia has been at the forefront for the past three years. It has updated many existing laws and introduced many new ones, for the sake of diversifying economic and financial resources and creating a favourable climate for investment and privatisation.

For its part, the UAE has made great strides in this regard and has achieved record results on the global competitiveness indices in terms of administrative and operational efficiency. This is set to lead and continue digitisation of government services by 2021, which will provide great opportunities for mergers and acquisitions in most  of the sectors, including logistics and retail trade.

The report says that the privatisation plans that the governments of the region are implementing are likely to spur more mergers and acquisitions in the region. A number of GCC governments intend to sell part of the companies they own, and world investors are looking to take on more opportunities arising from the rapid economic developments in the region’s economies, as well as the private sector’s drive in this context.

Private sector companies need to be more efficient, which means a surge in mergers. The report points out the difficulties and obstacles facing mergers and acquisitions in terms of the time required to complete transactions, taking into account the impact of economic slowdown on M&A activities.

The report emphasises the importance of investors and companies looking for deals that achieve real value for the local economy. Capital improvement and the accelerated use of technology will contribute to ensuring the real value of assets and generate more investment liquidity. Otherwise, the region’s markets will face further declines across different economic indices.