Political unrest across the Middle East and north Africa (MENA), combined with broader geopolitical issues, especially the stand-off between Iran and the West, will certainly have a negative impact on investor sentiment throughout 2012.
While in north Africa, Morocco appears to have escaped the political turmoil largely unscathed and Tunisia has undertaken successful elections, big uncertainties remain in Libya and Egypt. Libya has yet to form a fully functioning government, while in Egypt, there are concerns, however unfounded, that the recent success of the Muslim Brotherhood (MB) in the country’s general elections could prove detrimental to foreign investors. So far though, the MB has not given any indication that its policies will be any less favourable to foreign investors than the former Muhammad Mubarak-led regime.
Across the Middle East, it seems no country is immune from political, and hence market, volatility. Geopolitical uncertainties will doubtless deter some investors from putting money into the region. Nonetheless, mergers and acquisitions are expected to continue, albeit at modest levels, with most deals closing in the mid-market ($20m to $80m) price bracket. These deals are likely to be driven by, among other things, a narrowing valuation gap between buyers and sellers and the lack of liquidity in equity and debt capital markets, which is encouraging an increasing number of corporates to look for strategic or financial investors.
Large-scale restructurings in the Gulf Co-operation Council, both of family-owned businesses and government entities, are also resulting in non-core assets being put on the block. A number of private equity firms are also expected to undertake trade sales as the lifetime for holding investments draws to an end.
Some sources are also hoping that the region’s oil-rich sovereign wealth funds (SWFs) will start investing more within the region rather than abroad. Such a scenario is probably unlikely, however, while SWFs continue to hold a large pool of liquidity, a result of high oil prices, and they can win deals abroad at rock-bottom prices.
Lucia Dore is the head of GCC and Middle East at mergermarket, part of The Financial Times Group. E-mail: email@example.com