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Narayanan: Global M&A levels expected to stay
positive in 2016.

GCC attracts $4.5bn investment in Q1

MANAMA, April 12, 2016

GCC countries attracted combined investment of $4.57 billion across 64 transactions during the first quarter of 2016, led by the UAE which had 23 targets, said an industry expert.

While Saudi Arabia and Kuwait followed with 15 targets each, Oman had seven and Qatar and Bahrain had two each, added Ramachandran Narayanan, partner and head of Deal Advisory at  KPMG Middle East and South Asia (MESA) part of KPMG International, a global network of professional services firms providing audit, tax and advisory services.

“Sixty-five per cent of total Mena deal making for the first quarter of 2016 was attributable to GCC countries,” he added, commenting on the latest edition of KPMG’s International Global M&A Predictor.

According to the KPMG report, the world’s largest businesses to show an increasing appetite for M&A transactions during the remainder of 2016. The appetite to do deals is predicted to rise by 4 per cent over the next months, as indicated by predicted forward P/E ratios (our measure of corporate appetite or confidence).

The capacity of corporates to fund M&A growth, meanwhile, is expected to rise by 13 per cent over the same period, measured by net debt to EBITDA ratios (our measure of capacity), as companies continue to pay down debt and bolster their cash reserves.

With the Chinese economy cooling down, the US starting to raise interest rates and oil prices depressing the economies of oil exporting countries, uncertainty has increased significantly going into 2016.

“We expect strong transactional activity in many western economies in 2016 with healthy balance sheets, profit levels and strong liquidity in the debt markets among the highlights,” said Leif Zierz, KPMG International global head of Deal Advisory.

“Increased sector convergence and ongoing digitalization make a compelling case for future strategic adjustments. However, emerging market economies are expected to remain challenging.”

The positive picture comes despite some uncertain economic indicators, such as a predicted fall in net profits of 7 per cent globally. It appears that analysts are pricing this decline into their predictions, however, with market capitalizations only expected to see a 3 per cent reduction.

Europe is expected to be one of the strongest performers. The 10 per cent increase in appetite seen here is more than double the global average. In Asia Pacific (Other) and Asia Pacific (Japan), the figures area a more modest 6 per cent and 4 per cent respectively.

In North America, the positive environment for M&A activity in 2015 is expected to continue, with analysts expecting confidence levels to remain unchanged. In relation to the MESA region, the transactions pipeline still looks positive despite of the changing economic landscape.

Sector strengths

Energy is expected to see the highest increase in M&A appetite during 2016, at 23 per cent. Basic materials is at 12 per cent and consumer staples at 6 per cent. In terms of capacity, technology is the star performer, with an expected increase of 90 per cent, as tech companies continue to increase their cash stockpiles.

“Despite recent market jitters, the expectation that M&A activity will remain robust in 2016 is well-founded based on corporates’ ample cash reserves and their desire for growth coupled with consistent demand for quality opportunities from private equity sponsors,” said Phil Isom, global head of M&A.

Deal announcements outstrip completions

The total value of all announced transactions worldwide climbed by 31 per cent in value from $2,828 billion to $3,709 billion. This diverges significantly from the total value of all completed transactions worldwide, which declined by 40 per cent during 2015 (from $2,513.5 billion to $1,510.3 billion). – TradeArabia News Service




Tags: Mena | GCC | KPMG | M&A |

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