DOHA: A KPMG report focused on mergers and acquisitions (M&A) activity, has found that Qatar was within the top five countries for deal activity in the energy and natural resources (ENR) sector during financial year2016/17.
The ‘M&A predictor’ analyses historical deal information and provide an outlook on what can be expected in the coming year. The report highlights that, with ENR-related deals worth over $11.6bn, Qatar ranks fifth in the world, with the US, China, Canada and Russia taking the top four spots on the list.
On the findings, Hady Kotry (pictured), Deals Advisory expert at KPMG in Qatar said: “Mergers and acquisitions are fundamental growth factors for any economy, and for Qatar to be in the top list of global energy mergers is a notable landmark, with QIA’s investment in National Grid PLC in UK being an obvious turning point.”
“It is still too early to comment on future global energy trends given the volatility that impacts this industry, including the trade-off between investors’ appetite towards renewable, safe energy versus higher return on investments, which will be key factors in driving future trends,” he added.
Overall, the report highlighted that globally, M&A appetite (which is measured by market confidence or price-to-earnings ratio), was predicted to only marginally increase during FY17, largely due to flat market capitalisation and modest net profit growth. Qatar’s M&A appetite is forecasted to grow by 11.5 percent by the end of financial year2017-18. On this Kotry noted: “a prediction of 11.5 percent appetite for deals in Qatar shows a positive future outlook, however caution is required to ensure efficient and effective post-merger integration/post acquisition strategies to ensure value is realized.”
In the coming year, Qatar is expecting to see mergers in a number of sectors including banking, technology and telecommunications, construction and food and beverages, in line with global trends.
“An increase in M&A activity is likely to have a positive impact on the country’s economy, enabling businesses to consolidate assets, increase value and avoid duplicate costs through synergies, ultimately improving profitability. Reduced costs can also lead to businesses offering lower prices to customers, giving them critical competitive advantage, positively impacting inflation and leading to a better quality of life,” he said.
The introduction of new International Financial Reporting Standards (IFRS) in Qatar and around the world could also affect M&A activity financial year2017/18. The standards call for changes to the way that revenue is recognized, assets are capitalized and impairments are estimated which could have a knock-on impact on financial statements, leading businesses to question whether consolidation or carve-outs could be beneficial.
“Mergers and acquisitions can lead to transformative businesses changes but should not be undertaken in a rush. Holistic, strategic studies and financial due diligence to identify the current context under the new IFRS, and potential threats and opportunities, should be carried out to ensure that maximum benefit is gained from the deal,” Kotry explained.
