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Robust position of major economies & consolidated entities boost investor confidence over mid to long terms

Most of the private sector companies and organisations currently face myriad challenges as they laboriously strive to maintain a minimum level of stability and growth under the tough market conditions.

These companies may undertake internal restructuring, and opt for strategic partnerships or acquisitions, including mergers, as a solution to address what some markets are going through at the current stage, with the aim of strengthening their financial position and increasing their ability to secure mega-projects, not to mention their urgent need to improve their competitiveness.

Al Mazaya Holding’s weekly report said that the trend towards consolidation and mergers is an urgent necessity in times of business slowdown and stagnation. In the same time, it represents an exceptional opportunity under conditions of growth and recovery, as it reflects positively on the strength of the merged companies, market and economy in general.

The report added that the experience of mergers involving real estate companies across the region reflected several strengths that enabled the merged entities to keep afloat in the market and acquire a growing number of real estate projects.

They have managed to utilise the reasonable demand for all real estate products, especially residential ones in the Saudi market. However, this growing trend towards M&A requires exceptional capabilities for real estate developers to complete and develop projects within the required timeframes and in conformity with the highest international standards.

Al Mazaya report says that there are many real estate companies, both listed and unlisted, that have not yet played a direct role in providing the required real estate momentum. They suffice with insignificantly insufficient roles with no direct impact on the ongoing development drive. They don’t contribute efficiently to stimulating real estate’s contributions to economic and financial growth. This leads us to the bottom line that the trend towards merging such companies either with each other or in association with other local and international firms will reflect positively on the market.

Al Mazaya noted that the existing challenges and opportunities need innovative solutions in light of the unprecedented levels of competition and the urgent need to re-instil confidence in the real estate market again. There is an urgent need for major real estate developers who can provide real estate products that cater to all segments of society under all conditions.

Within this context, Al Mazaya reports that the huge urban projects which have been completed recently and those underway will stimulate other economic sectors, especially the banking sector in order to meet the requirements of these projects in terms of financing and the provision of banking facilities.

The quarterly performance indicators of the GCC companies indicated a 4.7% drop in total net profit achieved during the first quarter of this year compared to the same period of 2018. In the meantime, the banking sector led the list of sectors that contributed to the growth of the quarterly profits. The net profits of listed real estate firms in the UAE, for example, dropped to 12.5% in Dubai and 18% in Abu Dhabi. The same applies to a large number of listed realty firms across the region.

Al Mazaya says that the existence of many investment opportunities and ambitious projects now makes it unacceptable for property firms to continue to achieve declining performance results. These companies lie at the heart of the primary sectors that have a direct impact on economic growth. They also get the largest share of stimulus plans and government support. Therefore, says the report, M&A options remain the most efficient solution to address the challenges and opportunities faced by listed and unlisted real estate companies in the region.

According to Al Mazaya report, the accelerated imposition of punitive tariffs by the world’s major economies is an important indicator of how to deal with challenges and opportunities in the coming period. The chance of a trade war at the global level has become greater. The current bearish performance of global oil and financial markets coupled with increased government plans to address these conditions make it incumbent on us to develop more effective tools that reduce the impact of external influences on the performance of local companies.

The report emphasised that the advantages of the trend towards M&A far exceeds its negatives. M&A helps consolidated entities to influence market trends and prices, maximize profits and avoid volatilities and uncertainties, which will increase investor confidence in them and in their way of management over the medium and long terms.