June 11, 2015

Clyde & Co launches 2015 Middle East Deal Study

Clyde & Co is pleased to announce the release of its 2015 Middle East Deal Study. The report observes trends and developments in the mergers and acquisitions (M&A) and joint ventures (JV) market by analysing data from 75 corporate transactions on which the firm worked during 2014.

“The findings of the study indicate a positive outlook throughout the GCC and wider MENA region across a variety of sectors. We believe that the deal study provides valuable information on current market practices affecting both acquisitive companies and potential joint venture partners. The study has also been successful in providing a benchmark to analyse changes in market trends in the last two years and we hope it's a useful tool to those in the market."

The report, which is the only one of its kind in the region, provides an opportunity to benchmark and identify shifts in market trends since the inaugural deal study conducted two years ago and offers a unique insight into what businesses might expect from doing deals in the Middle East, as well as an indication of “market practice”.

To receive a copy of the study, please email layan.halet@clydeco.com

Key findings

Overall, the findings indicate that there is a solid deal pipeline, particularly in the GCC countries, with an encouraging number of M&A and JV transactions completed in the Middle East across a broad range of sectors, with a feeling that the region remains a "seller friendly market”.

Key points to note include:

  • Top Performing Sectors: high levels of deal activity in the infrastructure, hospitality, insurance, TMT and manufacturing sectors. The GCC countries in particular appear to drive the growth in infrastructure/construction transactions with increased levels of public investment. We see this trend continuing along with growth in related sectors (such as education and healthcare) which are required to satisfy growing populations across the region.
  • M&A activity remains strong: we saw a USD $6.5 billion aggregate deal value across 43 M&A transactions. Furthermore, 43% of deals reviewed were JV's (compared to 51% in the 2013 Deal Study).  In a region where JVs have traditionally been very popular, this may signify a shift towards outright acquisitions as being the preferred route to market (for a variety of reasons including integration, greater control and synergies).
  • Growing evidence of sophistication/maturity in the market: the traditional model was often for a lump sum fixed purchase price to be paid to the sellers. However, we are now seeing a shift towards more sophisticated purchase price adjustment mechanisms, such as completion accounts and the emergence of locked box (which have traditionally been used more in Western markets) used in 53% of M&A deals.
  • Seller friendly market: Overall, sellers still seem to be able to negotiate commercially advantageous deal terms (with widespread limitations on the sellers' liability and scaled-back warranty protection in almost 80% of M&A deals). Increased market confidence and the enthusiasm of new entrants to gain a foothold in the market could all be reasons for this trend.
  • Region specific factors: Due to the frequent requirement to obtain regulatory consents and approvals for transactions in the Middle East, it can often take time to complete deals (50% of M&A deals took between 1 and 3 months to complete). For similar reasons, only 23% of M&A deals took the form of business asset transfers.
  • The rise of DIFC as a forum for hearing disputes: in the majority of transactions reviewed for the 2015 Middle East Deal Study, there was a preference by the parties to use arbitration over courts as the forum for any disputes which may arise, with over 60% choosing to apply DIFC/LCIA arbitration rules. In summary choosing a forum for disputes and a law to govern the agreement can be one of the most critical parts (it's what gives "teeth" to the agreement). Our data shows that DIFC/LCIA arbitrations are clearly becoming more established and known to the parties in the region.

Philip O'Riordan, partner in Clyde & Co’s MENA corporate group, said: “The findings of the study indicate a positive outlook throughout the GCC and wider MENA region across a variety of sectors. We believe that the deal study provides valuable information on current market practices affecting both acquisitive companies and potential joint venture partners. The study has also been successful in providing a benchmark to analyse changes in market trends in the last two years and we hope it's a useful tool to those in the market."

To view the executive summary of the study, please download the PDF below.

To receive a copy of the study, please email layan.halet@clydeco.com