Investment banks are leaning on their merger and acquisitions advisory teams as a shortage of initial public offerings in the UAE knocks the wind out of their fees business.
Despite huge expectations, 2008 has been a slow year for companies going public with a number of planned IPOs hit by delays as regional economic conditions worsen. Firms that have not gone ahead with planned floats include Emirates Post and Future Pipe Industries, who both cited an unpalatable economic climate.
Abu Dhabi's Al Qudra Holding and Gulf Capital postponed their share sales earlier this year. With a large chunk of their fees on hold, investment banks are turning to M&A;As as a much-needed source of funding.
Bankers say an increasing climate of consolidation in the UAE is creating demand for advice on takeovers.
Iyad Duwaji, CEO at Shuaa Capital, told Emirates Business: "When money dries up in the public markets it means more opportunities open up on the private equity side. There are opportunities at the moment as demand for consolidation is there, and this would compensate for the dip in IPOs this year.
"I'm happy to have four to five IPOs in a year, that would keep us profitable."
Shuaa Capital's IBG-Advisory team acts as consultant to acquire and target companies, both publicly or privately held. It says it offers advice in a deal environment that is intensifying and becoming more complex.
UBS was book-runner on two of the GCC's successful international IPOs this year, interiors contractor Depa and Kuwait's Global Investment House.
Most recently, UAE-based Drake and Scull International said it expected to list its shares on Dubai Financial Market by the end of November. Al Mal Capital and HSBC Middle East are joint lead managers on the IPO.
Jan Randolph, Head of Sovereign Risk at Global Insight in London, said: "Stock markets are down across the GCC so it's not particularly appealing to launch an IPO at the moment.
"If you're looking at a consolidating market rather than a highly expansionist one it means there are companies facing difficulties. So the M&A advice would be sought by stronger firms to take over weaker ones.
"The sorts of things that would present themselves as M&A advisory opportunities would be companies that are affected in the same way as in the West. For example, firms rolling over debt or seeking finance would be ideally positioned for takeover."
Randolph said prime targets for investment banks could be large property firms in the UAE seeking to acquire a weaker counterpart.
"If you were a strong property developer with low leverage you might buy a highly leveraged weaker firm with low cash levels. You might want to seek M&A advice about this decision."
Speculation about companies in the region wishing to consolidate has grown at a time when a number of major international banks in the US and Europe have gone under despite fairly solid balance sheets.
Tightening liquidity in the Gulf has backed up suggestions that acquisitions could be on the cards as firms seek finance.
The number of banks per capita in the region is high, leading some experts to predict an increase in merger opportunities.
Speculation has recently surrounded developer Union Properties and Deyaar, while Amlak Finance and Tamweel are holding merger talks. In the banking sector, Abu Dhabi Commercial Bank and the National Bank of Abu Dhabi have been rumoured to be linking up.
Al Salehi said: "The Gulf generally is over-banked but this is mitigated by the fact it's a very wealthy region. The recent fallout in banking globally has shown that strong, quite large balance sheets with diversified sources of financing are the model going forward. Business for investment banks' M&A advisory teams in domestic mergers will pick up because I see more deals likely, but there won't be any panic mergers.
"There's been a lot of talk and momentum for consolidation in the banking sector, which is healthy, but it's taken a lot more time than in the rest of the world as the smaller banks here are more profitable." Al Salehi said he could see more domestic M&A advisory contracts, which could include regional mergers of banks.
But with tight credit conditions currently he said there would be few purchases of foreign companies by Gulf entities.
"Given the absence of leverage, I don't think we'll be seeing much of this. Although asset prices are cheap outside the region, deals won't get done without leverage and until the credit situation improves.
"Until the cost of borrowing and therefore banks' capacity to lend eases, I don't think people will be taking advantage of asset prices."
Al Salehi also said that investment banks would find it difficult to compensate fully for the delay in IPOs just from fees generated by their advisory businesses.