Middle East M&A Activity to Increase This Year on Egypt, EY Says

Mergers and acquisition activity in the Middle East and North Africa will rise this year driven by transactions in Egypt, according to Ernst & Young.

Volatile stock markets and the availability of bank funding will also contribute to an increase in buyouts, Anil Menon, MENA M&A and initial public offering leader at EY, said by telephone yesterday from Kuwait. Investment activity probably will focus on industries such as retail, food and beverages, and health care and education, he said.

“The pipeline for new deals looks very robust and I expect to see growth in both deal volumes and deal values in 2015,” Menon said. “Egypt is particularly leading that, which is a vote of confidence in the country’s political stability.”

Accelerating economic growth and a rising population in the MENA region is driving investment in the consumer industry from companies and private-equity firms. Kellogg Co. agreed to buy Egyptian biscuit producer Bisco Misr in December after a bidding war with Abraaj Group. L Capital. The private equity arm of LVMH Moet Hennessy Louis Vuitton SA agreed to acquire Saudi Arabian gourmet confectionery producer and restaurant chain Bateel last month.

There were 468 M&A deals last year valued at a total of $44.9 billion, according to a report by EY published today. Although that is an increase in the number of deals from the previous year, the total value fell by 11 percent, it said.

Blackstone, KKR

Interest in Middle East firms from international investors has picked up over the past 12 months. KKR & Co. is teaming up with Dubai-based Fajr Capital Ltd. to bid for a 25 percent stake in Azadea Group, the franchise operator of clothing chain Zara in the Middle East, people with knowledge of the matter said last month. Blackstone Group LP partnered with Dubai-based Fajr Capital Ltd to buy a stake in GEMS Education Ltd. in October.

Volatility in regional stock markets could also encourage more companies to look at raising capital through selling a stake to a private equity investor, Menon said.

Oil’s plunge in the second half of 2014 to the lowest price in more than five and a half years sparked a selloff across equity markets in the GCC. As a result, the United Arab Emirates’ market regulator advised “many” companies to delay IPOs this year, chief executive officer Abdullah Al Turaifi told reporters in January.

“A lot of the time companies looking for new investors consider a dual track, either a sale or an IPO and make a choice based on where they think they can get the best valuations,” said Menon. “What we see happening at the moment is some caution with respect to pricing an IPO amidst choppy capital markets and low oil prices. This could result in more private deals.”

Egypt’s stock market surged after the election of Abdel-Fattah El-Sisi as president last year and attempts by his government to promote investment in an economy that has struggled to recover after four years of political unrest. The benchmark EGX 30 Index rose 11 percent this year, the third-best performing exchange in local currency terms after Saudi Arabia’s Tadawul All Share Index and the OMX Helsinki 25.