The Egyptian market has witnessed a strong momentum in the activity of mergers and acquisitions recently, after the entry of Gulf sovereign funds to acquire stakes in companies listed on the Egyptian Exchange.
Ahmed Abdelgawad, one of the founding partners of ADSERO – Ragy Soliman & Partners law firm, said that the merger and acquisition activity in the Egyptian market is dependent on the exchange rate of the US dollar against the Egyptianpound, pointing out that the market is awaiting the final evaluation of the dollar against the pound to re-evaluate the assets.
He expected that the slight increase in the dollar price would not affect the valuations of the merger or acquisition deals, but in the case of the total flotation of the Egyptian pound, it would require a reassessment of assets to implement the deals.
He pointed out that more than 70% of merger and acquisition deals in the Egyptian market are based on Gulf funds and their purchase in state-owned assets, and they are currently the most active in the Egyptian market.
Abdelgawad added that the state’s reaching an agreement on the IMF loan is linked to an increase in the role of the private sector in the economy, which is one of the main reasons for the emergence of the state ownership document for partnership with the private sector, stressing the need to work on implementing the document during the coming period.
Regarding government-run IPOs, he believes that the success of the offerings relies on the size of the offering that must range between $80m to $100m, which means that the size of the company must be more than $200m, which is not widely available in the Egyptian market, wondering how many companies in Egypt are worth $200m.
He stressed that the culture of expansion through financial market proposals is not in the culture of most local investors.
The legal office is working on a number of deals in the sector, most notably two deals, one of which is for education services, related to the educational process, stressing that it is still in the initial stages.
In addition, the office is in the process of consulting a group of investors on establishing a new school in West Cairo, and it is still in the initial stages.
He added that the office is also managing a number of logistics sector deals after closing the recent deal for Abu Dhabi Ports’ acquisition of Transmar, as well as establishing two new companies for foreign investors in the logistics sector related to warehousing operations in partnership with local investors in the sector, provided that the locals take over the administrative operations.
He stressed that investors are moving strongly towards the renewable energy sector, which indicates the need for a regulatory framework for it, as a first step, in addition to overcoming the problem of pricing globally and locally, given that the pricing mechanisms are not clear, whether globally or locally.
He added that Egypt is qualified to assume a leadership role in this sector, especially since it has many renewable energy sources, as well as favourable opportunities at the present time to turn into the energy gateway to Europe after Russia announced the suspension of gas exports to Europe, which gives Egypt a golden opportunity to become the main source of energy in Europe, which gives it stronger political weight in that case.
The office is working on a deal for one of the Gulf funds, without adding further details.
Ibrahim ElGengehy, Counsel at ADSERO, said that Egypt is in the safety zone for investors intending to enter the Egyptian market, especially Qatari investments that plan to acquire stakes in listed companies, pointing out that in the event of the exchange rate being liberalized, the revaluation will be carried out and the assets will become less expensive, which leads to speed execution of deals.
He pointed out that the Egyptian market is very attractive in mergers and acquisitions, as it ranked second in the list of the most active markets in acquisitions.
He revealed that the office is working to establish two investment funds in the field of non-bank financial activities for local institutions, as well as two acquisition deals in the sector, one of which is the sale of 45% of GB Auto to Chimera Capital, as well as the sale of a share of Halan to Chimera, too.
He pointed out that the office is preparing to launch funds in non-banking financial activities, and procedures are still in the initial stages for the benefit of local investors.
He stressed the attractiveness of the health, education, and food sectors in the Egyptian market, as well as the logistics and transportation sector.
He explained that the office is currently managing about 4 deals in the pharmaceutical sector, one for the government, and the rest for the private sector, of various sizes, one of which is worth EGP 300m and the other exceeds EGP 1bn, expecting them to be completed before the end of this year.
In a related context, it is believed that the current period is not similar to the period before the flotation in 2016, in terms of investment appetite for mergers and acquisitions deals.
He believes that Egypt should benefit from its leading geographical position in the African continent by increasing its exports to Africa during the coming period.