Merger and Acquisition

Acquisition and merger operations have multi-purposes. These include expansion of the clientele basis and operations, increasing the market share or control, reduction of operational expenses, entering new markets, or obtaining new resources both human and technological, and benefiting from legislation. During 2011-2019, Kuwait witnessed about 317 merger and acquisition deals with a total amount of US$ 17.9 billion according to our analysis of available data from (Refinitiv) site.

The report divided those deals during the above-said period into two different periods. The first extends from 2011-2015and the second extends from 2016-2019 noting that Kuwait achieved during the first period a surplus in the State’s budgets by KD 47.6 billion (about US$ 158 billion) while it achieved deficits in the second in the amount of KD 19.3 billion (about US$ 64 billion) due to the drop in oil prices.

During the first period the number of merger and acquisition deals witnessed an uprising trend and registered 203 deals, 41 deals annual average during the years 2011-2015. However, the number of deals during the second period witnessed some retreat and scored about 114 deals, 29 deals average per year for the period from 2016-2019. Nevertheless, the matter was the opposite in terms of deals’ value. Deals’ value during the first period 2011–2015 scored about US$ 8.3 billion and scored US$ 9.6 billion in the second 2016-2019. The average value per deal in the second period scored US$ 84 million, i.e. more than two times the average value per deal in the first period.

According to the same source there were 9 huge deals (each one is worth more than US$ 400 million) during the period (2011-2019), 5 deals of which were made from 2011-2015 with a total value of US$ 3.6 billion (44% of total value of first period deals), an average of US$ 730 million per deal versus 4 huge deals during the years 2016-2019 with a total value of US$ 6.7 billion, US$ 1.7 million per deal. If we exclude value of the huge deals from the total, the average value of one deal during the analysis period (2011-2019) drops to about US$ 25 million per deal. This difference in the per deal average vanishes during the two periods (about US$ 24 million for the first period and US$ 26 million for the second period).

Share of local or national companies from the total deals’ value during 2011-2015 was the highest and captured about 39.6% of the total deals versus 32.9% of the total went to international companies and 27.5% went to GCC companies. This order changes in the second period 2016-2019: 57.1% went to GCC companies, 29.1% went to local companies and 13.7% of the deals went to international companies. 

With the drop in oil prices and their impact on the domestic economy, the orientation of merger and acquisition deals changed from acquisition deals of the majority assets (in the period 2011-2019 of buying full assets) to deals of buying partial interests in companies. Majority acquisition deals value scored 49.8% of total deals’ value in the period 2011-2015 versus 35.2% in the period 2016-2019. On the other hand, deals of buying partial interests rose from 38% in the 2011-2015 period to about 53.7% in the years 2016-2019 as in the graphs below:

Covid-19 pandemic and the weak prices of oil will affect extensively and negatively local and regional economies and consequently the performance of most sectors and local companies. Uncertainty may result in the cancellation or postponement of some mergers and acquisitions deals that were under implementation or preparation as a result of the high risks caused by the epidemic and its impact on the assumptions which the deal was based, or the change of priorities of the parties in the deal, or as a result of the lack of external funding necessary to implement the deal. Likewise, the logistical challenges it causes (and will continue to cause in the future) the Corona virus may have a major impact on these deals, and it is no longer possible to hold direct continuous meetings to accelerate negotiations or obtain the necessary approvals from regulatory agencies. Total value of merger and acquisition deals in the world scored US$ 730.5 billion during the 1st Quarter of 2020 a drop by 25% from last year’s figures (Refinitiv).

On the other hand, and under such conditions, many and varying opportunities are created for merger and acquisition operations. For example, Boursa weak performance lowered prices of a lot of listed companies which creates a good opportunity for acquisition. The uncertainty engulfing future horizons and the unmeasurable risks and the associating challenges are basic tasks of deal makers who seek good opportunities with relatively low prices. Finally, there are some sectors and businesses (such as healthcare, logistics services and telecommunications) which have benefited from Corona pandemic. Therefore, companies operating in these sectors should be a target for acquisition by investors who have no investments in these sectors.