Distress-related M&As show early signs of pickup in Mideast

Distress-related mergers and acquisitions have only just begun in the Middle East and its numbers may go up as more companies face financial difficulties, according to experts.

Vikas Papriwal, a partner in KPMG's private equity and sovereign wealth funds practice, told Emirates Business that the phenomenon was "still quite nascent".

"We are definitely seeing some action as far as bankruptcy related M&As are concerned, but I would say it is more distress than bankruptcy," he said.

Agreeing with him was Alaa El Din Rady, co-founder and MD of Enmaa Financial Services, an Egypt-based financial services and consulting firm. "Distress-related M&As have started to happen all over the world, including the Mena. They are happening specifically in the financial services and real estate sectors, since these have been directly hit by the crisis. In the last quarter, we have seen a lot of M&As in Europe and the US in the two sectors," he said.

Papriwal, too, zeroed in upon these two sectors. "It is happening in financial services and real estate. It's also happening in the manufacturing sector, as the market has shrunk now," he said.

Added Rady: "In our region, there are a lot of distressed transactions currently in the cooking phase, and we will hear about some of them soon. Companies that have a squeeze in liquidity and no access to ST or LT debt financing have started looking for PE funds as a source of equity financing."

According to Rady, as an investment bank, Enmaa Financial Services is currently working on several such transactions in Egypt and Saudi Arabia, and hopes that it can close them soon.

"One of the latest distress transactions to happen in Egypt was the 60 per cent acquisition of Damac Properties' New Cairo projects by the Housing and Development Bank in Egypt," said Rady while talking about the North African country.

At KPMG, Papriwal said there currently were some deals underway. "We are working on two or three transactions now," he said.

Papriwal believes a spillover from the West is inevitable. "More of this activity is happening in the West but we can also see early signs of such transactions in the GCC. There are specific distress funds that are being created to finance this kind of activity," he said.

In such a scenario, private equity is playing an important role in funding distress-related acquisitions. "Several PE funds are currently redirecting their focus to distressed companies, since they can buy them at very attractive prices.

"Moreover, the transactions have the potential of closing quickly, since the sellers are in dire need of injecting money into their companies to keep them alive," Papriwal said.

Rady said: "Sphinx Private Equity Management, a subsidiary of private equity firm Citadel Capital, recently launched a distressed fund. It was launched for $100 million, targeting troubled small and medium-size firms."

Going forward, experts believe there will be an increase in such transactions.

"Many big companies are considering selling their non-core assets and businesses to fund their core businesses, as lines of credit are being rationalised by the banks," Papriwal said.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.