Merger saga expected to continue

Lack of clarity leaves investors and shareholders anxious.

For many in the local real estate market, mergers and acquisitions appear to be a logical solution to stay afloat during the global financial crisis. Opinion is divided as to whether these moves will have a positive — or negative — impact in the short- and medium-term. Yet, it seems clear that without these mergers and acquisitions, the result would be a freeze in financing facilities and diminishing activity in the property sector, which would have an adverse effect on the overall economy.

Within the financial services sector, the merger plays started as early as last year. It began with Amlak and Tamweel announcing their plans of coming together to create an institution that would have access to federal funds and strengthen the country’s home finance marketplace.

When it was announced in November last year, the possibility of an Amlak-Tamweel joint venture gained considerable media attention and ratcheted up expectations.

In terms of property development, we have seen similar plays within the last 12 months. Dubai World, the portsto- property conglomerate, recently consolidated the management and property operations of its subsidiaries, including Leisurecorp, Dubai Maritime City and the Dubai Multi Commodities Centre. The property divisions of these companies will now be run by Nakheel, also part of the Dubai World portfolio

Rumours swirl around about a possible alliance between Deyaar Development and Union Properties, stoked even higher by recent news about the latter having liquidity problems and losing its long-serving chief executive.

But, the most significant merger possibility was thrown up quite recently, with Dubai Holdings’ three real estate arms — Dubai Properties, Tatweer, and Sama Dubai — initiating the process to cobble together an all-encompassing marriage with Emaar.

Way to ward off dissolution

There is a growing consensus among those involved in fine-tuning the process that allowing healthy companies to acquire those at risk of failing could stabilise the economy and bolster confidence in both the financial and property sectors.

For some, merging with a partner that has a strong balance-sheet is an essential step in warding off dissolution. Other spin-offs include leveraging economies of scale and getting into stronger negotiating positions with regard to suppliers and contractors.

In an ideal context, mergers allow companies to work together to achieve long-term, strategic benefits by uniting complementary businesses into a single, self-sufficient and more successful operation. When it comes to the property sector, consolidated companies have better control of the overall supply introduced into the marketplace and the quality of products and services offered.

Inheriting liabilities, debts

On the other hand, there are concerns these mergers will place a heavy burden on the stronger companies involved. These partners are not just taking over assets, but may end up inheriting large liabilities and debts. Furthermore, the mergers, once they are effected, are likely to generate a lot of uncertainty among investors and shareholders. Investors might have to accept further delays until these mergers are finalised.

Whatever the end result, the number of mergers involving financial and property organisations will only increase. For the new entities formed thereafter, the ability to provide prompt, transparent and practical information could be the benchmark for success or failure from the public’s point of view.

The writer is the managing director of Harbor Real Estate

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Originally published at https://mohanadalwadiya.com/2009/10/01/merger-saga-expected-to-continue/.