M&As and IPOs: The “new norm” in Egypt?

A wave of mergers and acquisitions (M&As) and initial public offerings (IPOs) have hit the Egyptian stock market. Is this the “new norm” in Egypt?
By Markets Chimp

4/9/17 9:37 AM

Post the devaluation of the Egyptian pound, Egyptian assets have become cheaper in US dollar terms, more than 50% cheaper! This opened the door for mergers and acquisitions (M&As) and initial public offerings (IPOs).

For the former, there are many reasons for M&As to take place, such as when companies look to expand in new sectors or markets (i.e. inorganic growth), investors look to exit some of their old investments (i.e divestiture), or players in an industry look to streamline their operations and achieve more efficiency through creating synergies. In Egypt, some of these types took place recently. Actis, an emerging markets-focused private equity firm, has reportedly fully exited Edita Food Industries (EGX: EFID) by selling the remaining 8% stake that it owned after the food manufacturer’s IPO in 2015. The 8% stake sale was valued at EGP898 million and was sold to international institutional investors. Actis had acquired a 30% stake in Edita back in 2013 for only EGP700 million before starting to divest its holding in piece meals. Elsewhere, the Egyptian Financial Supervisory Authority (EFSA)—the country’s capital markets regulator—has approved the sale of NBK Capital’s Egyptian brokerage arm to a consortium led by businessman Mr. Ramses Attiya in a deal valued at EGP27.5 million. National Bank of Kuwait (NBK) (KSE: NBK) has been reducing its exposure to the brokerage business around the MENA region and focusing more on the asset management and the investment banking lines of business.

For the latter, a slew of IPOs has taken place before the Egyptian pound devaluation and even more after! On 11 April, shares of MM Group (EGX: MTIE) will start trading post a successful coverage for its EGP708-million IPO of 10.6x. The public offering portion (15% of the IPO) was covered by around 19.3x, while the private placement portion (85% of it) was completed last Monday at more than 9x coverage. Coming up, Raya Contact Center (EGX: RACC) will go public in an EGP877-million IPO, the subscription period for which will start on 11 April through 20 April. More recently, another IPO is in the marking, where The Sabbour Group is considering floating its subsidiary Al Ahly for Real Estate Development by mid-2017. A joint venture between Sabbour Consulting and National Bank of Egypt, Al Ahly is looking to fund its EGP-billion expansions through the IPO.

For investors, M&As sometimes offer a huge upside as we have seen in the potential acquisition of National Co. for Maize Products (EGX: NCMP) or it sometimes indicate a certain valuation threshold to keep an eye on. Meanwhile, IPOs can sometimes offer a quick profit in a very short period, but if the IPOs are not “attractively” priced then there would be a very high likelihood that they would fail.

As always, only time will tell.


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