➤ Competition is intensifying among and between national and international investment banks in the Middle East and North Africa.
➤ Having a complete key service offering to win mandates.
➤ Junior staff hard to find and lacking life-saving experience due to COVID-19.
Nabil Lahham is the Head of Advisory and Investment Banking Coverage for HSBC Holdings PLC in the Middle East, North Africa and Turkey, and has worked in the region since the early 2000s. Previous jobs at Lahham include Managing Director roles at Nomura Holdings Inc. and Lehman Brothers. He was also Executive Director of Mergers and Acquisitions and Head of Middle East Asset Management at Morgan Stanley. Prior to joining HSBC, he was a partner at Perella Weinberg Partners LP in the United Arab Emirates.
Lahham spoke with S&P Global Market Intelligence about the investment banking landscape in the MENA region, including the intensification of competition between domestic and international players, the conclusion of multi-billion dollar deals on Zoom and difficulties in attracting and developing staff. The following is an edited transcript of the conversation.
S&P Global Market Intelligence: How fiercely is the competition between and between international and regional banks for investment banking activities in the MENA region and how does this competition affect M&A costs?
Nabil Lahham: The highlight of the market really was 2007, when overall investment banking fees in the MENA region were around $ 1 billion. Since then, fees have declined due to increased competition.
This competition is very focused on the most important transactions, with an even more dramatic change from 2012. The number of M&A deals has fallen sharply from 2012, although the overall value of deals has remained stable. – there are fewer acquisitions but they are, on average, more important than before.
Most mergers and acquisitions are for less than $ 250 million. Typically, as public data shows, around 50 regional agreements per year exceed this benchmark, of which around 15 to 20 exceed $ 1 billion.
You need to think about how you can offer broader solutions to your customers. Do you have funding, cover, all the other services you can provide and make sure the fundraiser stays competitive?
We’re probably in a bull cycle right now, with a lot of work in investment banking. Debt financing is likely to increase further because there is a huge need and appetite for loans and the debt capital markets. Equity markets have not been as active in the region since the euphoria of 2005-7 and fees are very low compared to the US and Europe. The maturation of capital markets has nonetheless allowed for greater diversification away from bilateral lending.
Are the big banks getting stronger and taking more market share?
HSBC advised [Washington, D.C.-based institutional investor] EIG on its recent $ 12.5 billion pipeline deal with Saudi Aramco. We made this agreement entirely on Zoom. The efficiency of doing things in a one-stop-shop approach is a very compelling proposition.
Clients also want to be able to manage the mandate in the most holistic way possible. Previously, they may have had more leeway to deal with the boutique companies for the M&A project and separately with the finance company for the financing. Now try to get first-time Zoom dates with a client – if you’re a stranger it’s hard.
Companies that have strong relationships, deep historical ties, and offer a comprehensive service offering are incredibly effective. They can optimize what has become a pretty fractured industry if you don’t have the complete solution.
HSBC was also involved in the sale by Oman of a 49% stake in the state-owned electricity transmission company to China for an undisclosed amount. If we hadn’t had a full-fledged team on the ground in Oman, we wouldn’t have been able to make this deal as effectively as we have, because none of us could travel. Having a presence throughout the region here has been extremely beneficial.
What are the other major challenges facing investment banks operating in the region?
Talent is very hard to find. Over the past five years, international banks operating in the MENA region have redeployed assets and people to different geographies. Lots of people have left the industry as well.
We are a learning company. We have to get people to learn the trade. It’s almost like being in the movie industry: you make one movie and move on to the next. It’s a project-based approach and each transaction is unique. The learning curves are extremely steep. So if you lose almost two years, like we did with the pandemic, it’s almost like four years in any other industry.
The juniors weren’t seated side by side, weren’t working together on projects, weren’t on the pitch or in front of clients. If you’re part of a larger organization, you get greater access, visibility, and deal flow, so the talent aspect is another reason bigger players get stronger. .
Public funds and local banks are also competing for the same staff as international banks. Local banks are increasingly sophisticated in the type of products and solutions they offer. They understand how to assess risk and have more risk appetite. There are more mergers between local banks. They get bigger and can take more than before.
What sectors will drive demand for investment banking activities and how is this evolving compared to recent years?
Over the past eight to ten years, around 60% of HSBC’s investment banking activities in the MENA region have been linked to the utilities, hydrocarbons, petrochemicals, healthcare and financial services sectors. I see that this proportion is maintained. There is still a lot of infrastructure monetization to be done. Each state-owned company decides what is essential and what is non-essential in its portfolio. There will be a lot of creative offers.
Infrastructure funds have become so important that they are looking for opportunities around the world. The Gulf is an interesting place for them to contribute their technology, their expertise and their ideas.