A bridge too far?

The frenzy of mergers and acquisitions that many commentators predicted the maturing Middle East IT channel would see by now simply hasn’t happened. Piers Ford investigates why not

Tags: Aptec DistributionG&K ConsultingHK ConsultingHP Middle EastMergers and acquisitionsUnited Arab Emirates
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A bridge too far? Ali Baghdadi, CEO & President, Aptec Holdings. (Efraim Evidor/ITP Images)
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By  Piers Ford Published  January 14, 2010 Channel Middle East Logo

There's nothing like a global recession for turning the old adage about safety in numbers on its head. Every man for himself might be a better maxim - and certainly, the rate of merger and acquisition (M&A) activity in the Middle East during 2009 suggests that consolidation is rife across the economic landscape; and not least in the high-tech sector.

According to Mergermarket, by October, the telecoms, media and technology industry had accounted for more than 75% of deals by value, and more than 20% by volume. The combined worth of 17 deals during the first three quarters of the year was US$17.75 billion.

Looking ahead to 2010, however, opinions are heavily divided as to how much impact this trend will have on the channel, where a strong proportion of family-owned businesses combined with high growth rates have always favoured a go-it-alone approach. But many industry-watchers think that after such a period of prolonged growth, the channel in the Middle East could be ripe for an M&A frenzy of its own, following in the wake of the hardware, software and dotcom sectors, with smaller players in particular entering the spotlight.

Hafeez Khawaja, CEO of HK Consulting, says that in the US and Europe, M&A has definitely brought channel competitors together to pool strengths, and deliver more value to shareholders, customers and vendors. But to date, this trend has been slow to kick off in the Middle East, with family-led structures, a lack of transparency and cultural reasons also playing their part.

"Selling a family-owned business is not seen as a sign of success, unlike acquisition," says Khawaja. "Over 20% growth in IT has also played its role, and most of the small companies were able to grow and sustain growth without seeing the long-term challenges of continuous growth. Now, with the changing environment and more demands from vendors, they face the necessity to invest in long-term strategy, hire the best people in the market, stick to the best products and vendors who add value to their business. M&A is a must for the channel and it has already started. Delta Business Products' acquisition by Almasa is an example."

Samer Karawi, managing partner at Dubai-based G&K Consulting, says there are seven main M&A drivers: cost reduction, the removal of competitors, improving exposure to complementary markets, leveraging the synergy of two merged businesses to meet customer demand, the reduction of tax exposure, improving geographical exposure, and diversification.

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