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Kuwait emerges as second largest M&A target market in GCC

Number of transactions grew by 163% between 2014 and 2018

Abdulrazzaq Razooqi

KUWAIT CITY, Feb 16: The Investment Banking Department at Kuwait Financial Centre “Markaz” said Kuwait has emerged as the second largest M&A target market in the GCC between 2014 and 2018 in terms of the number of closed transactions, surpassing Saudi Arabia, which used to hold that position up until 2016.

In this context, Abdulrazzaq Talal Razooqi, Assistant Manager, Investment Banking at Markaz said, “The number of transactions in Kuwait grew by 163% between 2014 and 2018, increasing from 16 to 42 transactions respectively. Most of the growth was witnessed in 2017 as the number of closed transactions increased by 131% from the prior year.

A total of 127 closed transactions involved Kuwaiti targets between 2014 and 2018, representing 23% of the total number of transactions in the GCC during the same period. The top transactions in Kuwait between 2014 and 2018 involved targets from the food and beverage, telecommunications, education, and technology sectors.”

Sector Analysis:
Food and Beverage: Razooqi added that Adeptio’s acquisition of Al Khair National for Stocks and Real Estate Company’s 67% stake in Kuwait Food Company (Americana) for $2.3 billion in 2016 marked the largest transaction within the food and beverage sector during the 2014 to 2018 period. Adeptio later increased its stake in Americana to 94% by acquiring an additional 27% stake through a mandatory tender offer (MTO) for a total of $932 million. Brazil-based BRF acquired a 75% stake in Al Yasra Food Company’s Frozen Food Division for a total of $160 million in 2014, effectively acquiring one of its distributors, which it had also replicated with Oman-based Al Khan Foodstuff.

The latest transaction in the sector includes Abdulrazzaq Abdulhameed Al Sane Group’s acquisition of a 92% stake in New Technology Bottling Company, the manufacturer of Abraaj Water, from a subsidiary of Kuwait Finance House for $66 million.

Telecommunications:
Oman Telecommunications Company (Omantel) acquired a cumulative 22% stake in Mobile Telecommunications Company (Zain) by first acquiring Zain’s 10% treasury shares for $844 million during Q3 2017 and later acquiring Al Khair National for Stocks and Real Estate Company’s 12% stake for $1.3 billion during Q4 2017. Saudi Telecom Company (STC) increased its stake in Kuwait Telecom Company (VIVA) by acquiring an additional 26% stake in 2016 through a voluntary tender offer (VTO) for a total of $425 million, thereby increasing STC’s stake in VIVA to 52%.

Education:
Transactions on Humansoft Holding Company led the activity in the education sector during the 2014 to 2018 period. Al Othman Commercial Enterprises first exited a 15% stake in Humansoft during 2017 for $184 million, later exiting an additional 17% stake during 2018 for $226 million. Al Imtiaz Investment had also exited part of its stake amounting to 10% in Humansoft during 2017 for $120 million. Boubyan Petrochemical Company acquired a 53% stake in Educational Holding Group during Q2 2017 for $129 million, later increasing its stake by 25% through a MTO during Q4 2017 for $63 million. Al Sayer Group acquired a 45% stake in Al Razzi Holding Company during 2017 for $89 million, providing it with exposure to both the education and healthcare sectors.

Technology:
The acquisition of Talabat by Germany’s Rocket Internet for $170 million in 2015, marked the largest transaction in the Kuwaiti technology sector, later resulting in other sizeable acquisitions in the sector. Carriage was acquired by Germany’s Delivery Hero in 2017 for $97 million, nearly a year after commencing its operations. NBK Capital recently acquired a 56% stake in 4SALE for $100 million. Also, Boubyan Petrochemical Company acquired a minority stake in online beauty product retailer, Boutiqaat, for $46 million during 2018.

Summary and Outlook:
The Kuwaiti M&A market has witnessed tremendous growth between 2014 and 2018. Large deals took place including the acquisition of Americana by Adeptio, Omantel’s acquisition of a stake in Zain, STC increasing its stake in VIVA, the sale of considerable stakes in Humansoft by its major shareholders, and Rocket Internet’s acquisition of Talabat. While there were active Kuwaiti acquirers in the market like Boubyan Petrochemical Company, the top five deals between 2014 and 2018 were all led by acquirers from other GCC countries or foreign (non-GCC) acquirers. Going forward, the Kuwait M&A market is expected to continue its growth, however it is difficult to predict with accuracy how many mega transactions will be witnessed. Increased foreign interest in Kuwaiti companies, improved legislation by the Capital Markets Authority (CMA) and Boursa Kuwait, consolidation amongst industry players, and investments in non-conventional sectors by institutional investors, are expected to drive that growth.

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