The game is back on for M&A

Bankers and lawyers in the UAE are gearing up for a pick-up in merger and acquisitions from next year.

Simon Penney, the chief executive of RBS for the Middle East and Africa, says corporate consolidation is in sight. Paulo Vecina / The National

Bankers and lawyers are preparing for a recovery in mergers and acquisitions (M&A) from next year, as asset sales by indebted companies and expansion ambitions of others pull the sector from its lull. Returning investor confidence after recent bond sales and Dubai World's restructuring deal is expected to help spur activity. But the pickup is not expected to signal a return to three years ago, when investment banks and law companies took hefty profits from plentiful leveraged buyouts.

Royal Bank of Scotland (RBS) hopes to become involved in deals resulting from Dubai World's plans to restructure chunks of debt maturing in the next five and eight years. "It's exactly in the sweet spot of activity for us," said Simon Penney, the chief executive of RBS for the Middle East and Africa. "That's exactly how we are gearing the whole focus of our investment bank." Fire sales hoped for by international bankers at the start of this year failed to materialise as Dubai World progressed with its debt restructuring proposals.

Last month it announced a near unanimous agreement with creditors on restructuring US$24.9 billion (Dh91.45bn) of debt. Bankers anticipate more deals from next year if Dubai World embarks on asset sales over the coming years as it seeks to raise cash. "The distinction is that they won't be asset fire sales so they won't be sold at huge discounts to market just to raise cash," said Mr Penney. "It all depends on how much business values return. The more value they will realise, the less assets they will sell."

More deals could be on the horizon from debt rescheduling by Dubai Holding and any other government-related entities. "We are gearing up for more activity both on a regional and cross-border basis," said Omar Mehanna, the managing director and head of advisory for the MENA region at HSBC. "There's a sense of increased investor confidence and recent news from Dubai will help." A $1.25bn sovereign bond sale by Dubai and a $450 million bond offering by Emaar Properties should help to thaw financing markets and tighten credit spreads.

Access to the debt finance used to leverage big deals is only slowly improving after the global downturn. In a sign of a pickup in activity, the UAE telecommunications company Etisalat last week made an offer of about $12bn to buy a stake in the Kuwaiti operator Zain. Companies with government backing in the hydrocarbon and utility sectors would become more acquisitive as they looked to build infrastructure, Mr Mehanna said.

A lawyer specialising in M&A, who asked to remain anonymous, said: "There are a number of entities in the UAE going through formal and informal restructuring processes and they will have to come on to the (M&A) market over the next three years." Any moves by the region's private equity houses to buy assets without high leveraging may help to boost the market, he said. "The key issue going forward for M&A markets in the region as a whole is the difference in perception of value that exists between buyers and sellers," said David Law, the head of wholesale banking in the MENA region for Standard Chartered. M&A activity in the MENA region dropped by 40 per cent last year compared with 2008, according to the investment bank Morgan Stanley.

"If M&A activity picks up it means more business for investment banks, both on the sale and buy side," said Alexander von Pock, a principal at the management consultancy A T Kearney in Dubai. "This is an area in the GCC that has been covered traditionally by global banks rather than local banks."