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Action at last… but is it the right sort?

Action at last… but is it the right sort?

If you’re not being merged or acquired, you’re missing the boat, apparently. Kipp takes a look at a business activity that is recovering well, according to reports. But is it a good thing?

February 2, 2011 3:11 by

It’s not just randy British expats associated with high profile coupling here in the Middle East, you know. It turns out that in the business world, one of the areas we are seeing good signs of recovery is mergers and acquisitions. Sorry, that intro was lame.

But what isn’t lame (sorry again. Kipp isn’t feeling well…) are reports this month confirming that 2010 was a good year for regional M&A.

A couple of weeks ago reports gleefully announced that Middle East M&A activity hit new highs in 2010. Apparently, more than 500 deals went through – the most on record, according to Thomson Reuters 2010 Middle East Investment Banking Analysis. The value of all this action was a lumpy $31 billion, according to Reuters, which was more than double the value of M&A in 2009, the year of which no one wants to speak.

Weirdly however, the top deal is reported as being Etisalat’s attempted absorption of 46 percent of Kuwaiti telco king Zain, but since that deal is still in slow motion (Kingdom Holding just made a move on Saudi Zain, a part of the Zain empire that will have to be sold if the deal is to complete) we’re not sure how it got counted. Expect to see it also included in round ups of 2011; who can blame them, it’s a chunky piece of business that lends a boost to the numbers.

Anyway Russell Haworth, managing director of Thomson Reuters Middle East and Africa, summed it all up thus: “Last year, the investment banking sector in the Middle East regained some of the strength that was lost during the global downturn of the previous year. We would expect to see the same momentum regained in the Middle East in 2010 to continue into 2011.”

And he’s not the only one seeing the momentum. The delightfully named Deloitte Touche Tohmatsu Ltd expects the number of M&A deals to double again in 2011 as economies expand and governments plow money into infrastructure. But here’s a question for you: While all this sounds like a good thing, is it?

The trouble with M&A is, the success rate is not particularly high. It’s hard to say that many of them are failures, as you can use different criteria by which to judge them, but received wisdom is that the chances of success with an M&A deal are generally around 50 percent. One Wall Street blog cites a 2004 Bain & Co study that found “70 percent of mergers fail to create shareholder value.” So when you hear all this excited ‘M&A deals on the up’ talk, bear in mind that the winners from this are guaranteed to be the banks and lawyers brokering the deals and the shareholders who get out early, while the companies involved take their chances.

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