The total number of mergers and acquisitions (M&A) in the Middle East and North Africa (Mena) increased 4 per cent last year from 401 in 2010 to 416 in 2011, according to Ernst & Young's 2011 year-end Mena M&A update.
The total deal values fell 28 per cent from $44.1 billion (Dh161.9 billion) in 2010 to $31.7 billion in 2011. The fourth quarter of 2011 experienced a considerable increase in total deal value compared with the third quarter, rising from $4.4 billion to $7.2 billion, up 64 per cent.
The first half of 2011 experienced a higher average value of M&A deals at approximately $10 billion compared to the second half, which showed an average value of approximately $6 billion.
"A larger number of deals at smaller valuations signifies that asset values across the region have taken a tumble in light of the lower regional economic growth and also the projections for future growth," said Phil Gandier, Mena Head of Transaction Advisory Services, Ernst & Young,
Gandier attributed the slowing deal closures in the region to the continuation of the valuations gap between buyers and sellers.
"Once this discrepancy begins to narrow, we may begin to see deal closures picking up some pace. Sellers have acknowledged that future cash flows from their business stakes will not be as strong as they had hoped for and are now in the process of re-evaluating their options.
"These numbers indicate that 2012 will be favourable to buyers if they can add substantial value," said Gandier.
In domestic transactions, the UAE topped the region with 49 deals followed by Saudi Arabia with 44. In terms of deal value, countries that ranked highest were the UAE, comprising 40 per cent ($3.9 billion) of total disclosed deal value in the domestic space in 2011; Saudi Arabia followed at 29 per cent ($2.8 billion) and Kuwait at 11 per cent ($1.1 billion).
Volume-wise, domestic transactions outnumbered inbound and outbound deals, comprising about 54 per cent of total announced deals last year. But in value terms, outbound deals were higher, comprising $16.3 billion or 51 per cent of the total.
"A drop in inbound deals directly correlates with the decreasing levels of foreign direct investment (FDI) the region is able to attract. This was to a large extent driven by the uncertainty caused by the changes in the region," added Gandier.
Sectors that attracted the most domestic M&A activity in 2011 in terms of volume included diversified industrial products (37 deals worth approximately $680 million) and real estate (28 deals worth 3.6 billion).
Similarly, in the inbound M&A space, the sector with the greatest deal activity in 2011 was diversified industrial products (21 deals worth $1.3 billion). This was followed by oil and gas (12 deals worth approximately $1.3 billion).