By: Mahmoud Gamal
Dubai – Mubasher: The UAE’s digital retail sector may see new acquisitions in the coming period, a Baker McKenzie Habib Al Mulla – UAE partner has said, indicating Amazon’s recent acquisition of Souq.com.
While there are positive forecasts for the coming period such as oil price rises and a more open approach from Saudi Arabia, there will likely be negative aspects such as regional tensions and instability, higher interest rates, and increases in the value of regional currencies, Will Seivewright told Mubasher in an exclusive interview.
Amid the current status quo, we do not expect any major mergers and acquisitions (M&As) in 2018, the top official added.
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What have been the most important M&A deals in the UAE and your take on them?
Will Seivewright: In my view, the most important deal of the year has been Amazon’s acquisition of Souq.com. It demonstrates the continued interest of international investors in consumer-facing businesses but is also a game changer for the technology/e-commerce industry in the UAE, the full effects of which are yet to be felt.
Amazon was the first major international e-commerce player to enter the UAE online retail space in what was to date a highly fragmented market. They also entered the market at a time when local retail giant Mohammed Alabbar was establishing noon.com with an investment of USD1 billion from Saudi’s public investment fund. How this market dynamic plays out is going to be fascinating to watch.
The UAE online retail market as a percentage of overall UAE retail sales still significantly lags compared to more developed markets and the possibility for growth still remains. But as competition heats up, one can expect the fragmented market to witness funding rounds, consolidation and ultimately elimination of a number of market players.
Could you please mention the factors that affected these operations this year, whether positively or negatively?
Will Seivewright: The UAE is subject to many influences, both positive and negative. Investors are still drawn to the regional demographics, good infrastructure, continued GDP growth and the UAE’s role as a hub for the region and into Africa. The main headwinds in 2017 have been oil prices, currency appreciation, regional instability, weaker consumer confidence and the government’s drive to address fiscal deficits both through reduced spending and also increased government receipts.
In 2017, businesses felt this mostly through increases in the government fees and levies (e.g. fees for licence renewals) but this will be supplanted from 1 January 2018 with the introduction of VAT payments. Despite this, M&A activity has continued to fare relatively well. Investors appear to have adapted to these influences, see uncertainty as the new normal and factor them into their investment decisions which are ultimately more influenced by long-term strategic decision making than short-term economic considerations.
Your expectations for the M&A landscape in 2018.
Will Seivewright: As things stand, I don’t see major changes in levels of M&A activity in 2018. While there are positive influences such as improvements in the oil price and the further opening up of Saudi Arabia, these could easily be offset by the growing regional instability, increases in interest rates and further strengthening of regional currencies.
In your opinion, what is the estimated value of M&A’s in the UAE next year?
Will Seivewright: The Baker McKenzie Global Transaction Forecast third edition predicts that deal volumes and values will remain fairly consistent with the last four years, excluding major sovereign deals.
Are there sectors that will be the centre of M&A’s next year (or a sector that will witness high activity)?
Will Seivewright: We expect the consumer-facing and infrastructure sectors to remain busy, driven by the continuing population and non-oil GDP growth in the UAE. For us, the most interesting and active sector to watch is the tech sector, particularly the disruptive effects it is having on traditional manufacturing and heavy industries and also the significant new players (Amazon and Noon) in the online retail space.
Do you think there is a sovereign (government) direction for major deals like Mubadala and IPIC?
Will Seivewright: For obvious reasons, it is not always possible to determine the reasons for these types of sovereign deals, however the improvement in oil prices and newly introduced taxes will certainly lessen some of the fiscal drivers for such major sovereign transactions.
