Middle East deal activity picks up in Q2 2017: Baker McKenzie Report

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  • EU is the top cross-border M&A target in Q2 2017 as China returns to the deal table
  • Middle East outbound M&A witnesses highest deal value since 2015
  • UAE dominates both inbound and outbound Middle East M&A
Will Seivewright, CorporateM&A Partner at Baker McKenzie Habib Al Mulla

Jeddah: Despite a backdrop of continued political turbulence, cross-border dealmaking held steady globally in Q2 2017, with the Middle East seeing a substantial uptick in deal activity, according to Baker McKenzie’s Cross-Border M&A Index*.

The global Index, which tracks quarterly deal activity using a baseline score of 100, decreased to 233 for Q2 2017, down 4% from the prior quarter but up 15% from Q2 2016. In Q2 2017, cross-border M&A made up 36% and 47% of global deal volume and value, respectively.

Buyers announced 1,368 cross-border deals worth US$345.8 billion, a 10% decrease in volume but only a  1% decrease in value compared to Q1 2017. As the EU gained relative stability in the wake of Brexit developments and elections in the region, it accounted for more than half of cross-border deal value and nearly half of cross-border deal volume in Q2 2017.

North America was the most acquisitive region by deal value, announcing 364 deals valued at US$128.9 billion. Following a challenging first quarter impacted by government legislation, Chinese investors returned to the deal table in Q2 2017 and were the second most acquisitive cross-border nation with 94 deals valued at US$35.9 billion.

Globally, the Chemicals and Materials sector led by deal value in Q2 2017 with 42 deals valued at US$60.4 billion, while the Industrials sector led by deal volume with 209 deals valued at US$25.4 billion. Pharmaceuticals and Construction were the second and third highest sectors in terms of value, contributing US$40.2 billion and US$36.3 billion, respectively.

Cross-regional Middle East M&A activity

Middle East cross-border dealmaking picked up in Q2 2017, with the Middle East Index increasing to 201.5, withstanding the continuing political and economic uncertainty in the region and beyond. Cross-regional deal activity was spurred by a substantial increase in outbound M&A, although the quarter witnessed lower inbound M&A activity. The United Arab Emirates (UAE) continued to drive M&A in the region, being the most active country in the Middle East in respect of both inbound and outbound investment.

“Largely due to two mega transactions, the first half of 2017 has seen an impressive four-fold increase in Middle East outbound deal value compared to the same period last year, despite a much smaller number of deals,” said Will Seivewright, Corporate/M&A Partner at Baker McKenzie Habib Al Mulla, based in the UAE. “While M&A deals targeting the Middle East dropped in both value and volume in Q2 2017, the overall level of cross-border and cross-regional activity that we are seeing is a promising indicator for the rest of the year.”

Inbound Middle East M&A

Compared to the previous quarter, the value and volume of cross-regional M&A deals targeting the Middle East fell by 38% in Q2 2017, with only five deals valued at US$1.84 billion, representing a 73% decrease from the same quarter last year.

The UAE was the top target country by both volume and value, with three deals across various sectors amounting to US$1.07 billion. France was the top bidder country by value for Q2 2017, with ENGIE’s US$775 million acquisition of a 40% stake in UAE-based industrial firm Tabreed.

Financial Services was the top performing sector by volume and value in Q2 2017, accounting for three deals valued at US$1 billion.

Outbound Middle East M&A

By value, cross-regional deals originating from the Middle East trebled from Q1 to Q2 2017, reaching US$17.2 billion – the highest outbound M&A value since 2015, which was a record-breaking year for cross-regional M&A. However, deal volume fell by 41%, with only 10 deals during the same quarter.

The UAE was the most active outbound investor country from the Middle East by both volume and value, with a total of six deals valued at US$16.6 billion. The second and third highest bidder countries by both volume and value were Bahrain with three deals valued at US$571 million and Qatar with one deal valued at US$73 million.

The Pharmaceuticals sector was the stand-out industry by value, attributable to the mega US$9.05 billion buyout of US-based Pharmaceutical Product Development, LLC by the sovereign wealth funds of Abu Dhabi and Singapore. The Transportation sector was top by deal volume, recording three deals.

*Methodology

Baker McKenzie’s Cross-Border M&A Index assesses the strength of worldwide cross-border M&A activity in each quarter since Q1 2010. Based on a weighted average of cross-border deal values and volumes in each quarter, we calculate a score from a baseline figure of 100, which represents the level of activity in 2009. That score provides an easy-to-understand indicator of how cross-border deal activity changes from quarter to quarter, enabling viewers to identify patterns.

We define cross-border deal-making as any M&A activity involving a bidder and target based on separate countries. The overall index score is comprised of four weighted sub-categories, giving slightly more weight to more ambitious deals between parties in two different regions.

For the purposes of this report, the Middle East was defined as: Bahrain, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and UAE. M&A activity refers to all deals announced as at 1 July 2017.

About Baker McKenzie:

Baker McKenzie is the No. 1 cross-border M&A law firm. Over the last 12 years, we have completed more cross-border M&A transactions than any other law firm. In addition, it is the 4th year in a row that the Firm has been ranked No. 1 for deals involving emerging markets. With more than 1,300 M&A lawyers in 77 offices globally, we have one of the largest and most active M&A practices in the world.

Baker McKenzie has most recently been recognized for its exceptional legal and advisory service in the Middle East, voted “Telecoms, Media & Technology M&A Legal Adviser of the Year” by Mergermaket in their Middle East M&A Awards 2017;“Litigation Law Firm of the Year” at the Middle East Legal Awards 2017 hosted by Legal Week and the Association of Corporate Counsel; and “International Law Firm of the Year” at the Oath Middle East Legal Awards 2016.

Baker McKenzie helps clients overcome the challenges of competing in the global economy. We solve complex legal problems across borders and practice areas. Our unique culture, developed over 65 years, enables our 13,000 people to understand local markets and navigate multiple jurisdictions, working together as trusted colleagues and friends to instill confidence in our clients.