Ihab Khalil and Ronald Maalouf (Right)
Following an unprecedented economic shock caused by the sudden global health crisis, mergers and acquisitions (M&A) activity stopped in its tracks in 2020. However, the segment has since rebounded strongly, with deals soaring in volume and value in 2021, according to a new report by Boston Consulting Group (BCG) in collaboration with Germany’s Professor Sönke Sievers of Pad-erborn University.
The report, titled Master the Art of Breaking Up, sheds light on both positive and negative sce-narios that have transpired across global markets in recent times, including in the GCC. This 18th annual analysis of the GCC’s M&A landscape is based on BCG’s M&A database of more than 4,500 deals from January 1990 to June 2021. This edition of the report comes after the impact of COVID-19 had been seen on the sector. The volume of deals in the GCC between 2019 to 2020 had decreased by 15 percent and the deal value declined by 61 percent (from $85bn in 2019 to $33bn in 2020).
The report further shows that while the GCC’s M&A deal value of the first half of 2021 has not fully picked up ($14bn for the first half of 2021, 47 percent below the levels of the first half of 2020), the GCC’s M&A market is recovering from the pandemic, with the volume of deals for the first half of 2021 relative to the first half of 2020 increasing by 39 percent.
“Despite the ongoing crisis, the impact on M&A deals being made has proven to be tem-porary, with volume rallying sub-stantially this year following an intense period of difficulty not long ago,” explained Ronald Maalouf, Managing Director and Partner, BCG. “The outcome for the region is attributed to a higher volume of transaction, as well as corporate decision-makers, investors, and deal brokers oper-ating across the region. Their adaptability has collectively enabled the M&A segment to rebound favorably generally, although deal value must now follow the volume of deals in rebounding before the re-emer-gence processes are concluded, which rests with a collective effort from respective local markets.”
Notwithstanding global M&A deal value rallying thus far in 2021, the GCC has seen a contrary trend in this area, with overall regional deal value down by 47 percent when comparing the first half of 2020 to the first half of 2021.In Qatar, deal value decreased in the first eight months of 2021, although the volume of deals had grown by over five times when compared against the first eight months of 2020. Qatar’s 2020 figures were propelled by a large merger in 2020 – a $2.2bn merger between Masraf Al Rayan and Al Khaliji Commercial Bank propelling overall value in 2020 to $4bn (double the country’s $2bn deal value average between 2015 to 2020).
Kingdom of Saudi Arabia (KSA), had recorded a decrease in deal value in the first eight months of 2021, albeit an increase in the volume of deals by 13 percent. The decrease of deal value is an indication of less large-scale transactions that the Kingdom has seen in previous years – such as Saudi Aramco’s acquisition of SABIC in 2019 and the National Commercial Bank’s merger with Samba Financial Group in 2020.
However, the growth in the volume of deals for the Kingdom in 2021 further indicates a more diverse and less concentrated number of deals – highlighting stronger deal activity in the Kingdom. “These examples illus-trate that deal value in the GCC will follow a volume of rebounding from the pandemic,” said Ihab Khalil, Managing Director and Partner, BCG. “This will stem from several factors that continue unfolding across the region, such as increas-ingly favorable economic condi-tions, industrial and regional con-solidations, and widespread sus-tainability efforts. That being said, the coming period is one where value creation can also be attained in other areas, including on the back of divestitures.”BCG’s report highlights that regional sellers have gained more longer-term value from divest-ments than their peers at the global level, with cumulative abnormal returns (CARs) reaching a median of 1.8%, which is particularly notable when benchmarked against the global 0.3%.
Fur-thermore, relative total share-holder returns (RTSR) for the region, which measure outper-formance or underperformance of a seller’s value creation com-pared with its benchmark index during the two years after a dives-titure, have also risen. The GCC figure now stands at 6.6 percent compared to the global 1.6 percent, conveying that – in spite of divest-ments volume trending down-wards in recent years - sizeable shareholder value can result from frequent portfolio restructuring and divestitures of non-core assets.
