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Severnaya M&A Outlook Q3/Q4 2019

Mergers & Acquisitions in Technology, Media and Telecommunications (TMT) across Central & Eastern Europe, CIS and MENAT.

Cross-border mergers and acquisitions (M&A) have emerged as the strategic choice for companies to gain access to new markets and customers. This was certainly the case for Uber’s planned acquisition of its Middle Eastern rival Careem.

Global trends point towards an increasing deal volume for the second half of 2019 as cross-border deal activity continues and competitive dynamics related to technology and globalization make M&A more of an imperative than an option.

Technology is making the world smaller, converging sectors and connecting geographies while new players are entering and establishing themselves on the Mergers and Acquisitions scene.

The United Arab Emirates has risen in the rankings to number 10 on the Ernst and Young Global Capital Confidence Barometer. Saudi Arabia, the UAE themselves and the US are the Top Three Players in the market and the three main industries for Mergers and Acquisitions continue to be Industrials; Consumer Products and Retail; and third, Financial Services, which is becoming increasingly converged with the TMT sector due to rise of Fintech. Emirates NBD’s plan to purchase Turkey's fifth-largest lender, DenizBank, is an example.

The growing trend and appetite for M&A deals across the wider Gulf region promises a positive second half of 2019, since the first quarter of 2019 witnessed a 70 percent increase in the number of completed transactions by foreign buyers compared to the first quarter of 2018. Comparing it to the fourth quarter of 2018, the number of transactions actually grew by 89 per cent.

Companies are showing an optimistic outlook as rewards often outweigh the risks of engaging in up and coming investment markets.

In Ukraine, for example, election-driven uncertainty slowed down the first three months of 2019, which brought about a slowdown in inbound M&A activity after a two-digit percentage growth in 2018. However, it is expected that the M&A growth will pick up for the second half of 2019 as the new government focuses on attracting foreign investments.

Investors are also looking at distressed assets and IT targets. Meanwhile, investments in the Ukrainian IT startups scene show a promising future for the TMT sector, having increased by 30% last year y-o-y, to $337 million while, the number of deals increased by 29%, to 115 and the average investment increased by 12%, to $918,000. Mergers & Acquisitions appeared for the first time, with seven deals registered, or a total of $25 million in 2018.

Whether it is entering a new market, acquiring new talent or technology, expanding into adjacent industries or moving at pace with customers, technology is the fulcrum of heightened M&A intentions.

The other significant factors are the need to mitigate risks and navigate around regulatory regimes.

Regulatory challenges and the political climate look set to be the main determinant of cross- border success in M&A deals getting over the line, nonetheless expectations are for a busy 2019 in global dealmaking.

In Russia, M&A activity was almost flat in terms of value in 2018, totaling EUR19.99 billion across 153 transactions, compared to EUR20.2 billion (178 deals) announced in 2017. However substantial growth in M&A activity has been seen in the fields of pharmaceuticals, agriculture, IT / technology & retail/consumer.

Elvira Nabulina, Head of the Central Bank of Russia recently announced new measures that would help the Russian economy to support a business climate for the economy to grow amidst sanctions and trade tensions.

In Georgia the financial sector is one of the drivers in cross-border M&As with TBC Bank, which has signed a contract with Azerbaijan’s Nikoil Bank to merge, expanding TBC’s share in the Azerbaijani market.

The World Bank forecasted 5% CAGR for Georgia in 2019, 2020 and 2021 showing that the economy is becoming increasingly diverse and competitive. Its strategic location on the Belt and Road project means that attention on this small, culturally rich nation is likely to grow in the coming years, which is likely to make it an an up and coming player for M&As soon, despite the recent travel ban for Russian citizens to visit Georgia.

At the beginning of 2019, a highly valued M&A transaction took place in Georgia. Paddy Power Betfair acquired a controlling share in one of the leading Georgian betting and gambling groups in Georgia, Adjarabet. This transaction was valued at £101 Million.

Georgia’s growing economic and political proximity to the European Union means its dynamic private sector is of interest with increasing attention being paid to its key economic players.

Qatar meanwhile did not attract any foreign buyers during the first quarter of 2019.

However, with a total of 14 announced transactions in the pipeline during the first quarter of 2019, representing a 27 per cent increase in the number of announced transactions compared to the fourth quarter of 2018. UAE and Saudi Arabia collectively accounted for 79 percent of the announced transactions during the first quarter of 2019 while Oman and Qatar made up the remaining 21 percent.

TMT M&As are expected to increase in importance and value across all the analyzed countries especially when it comes to cross-border transactions.

Severnaya Group Limited trades as Severnaya Investments across Europe, CIS and MENAT and is specialized in Cross-Border M&A and Corporate Finance for the Technology, Media and Telecommunications industries.

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*This article was originally published on LinkedIn on July 9th, 2019

Paddy Power Betfair Bought 51% of Adjarabet for £101 million - options to acquire 49% in 3 years. © Copyright Severnaya Group Limited. All rights reserved.

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