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Acquisition with a view to transition

24 October 2024

 

Adnoc International’s $16.3bn bid for German plastics group Covestro, signed on 1 October, has called fresh attention to the Middle East and North Africa (Mena) region as a source of merger and acquisition (M&A) activity.

The deal by the UAE state energy company’s overseas business arm, which is the largest Mena deal of the year, is just one of a string of acquisitions by regional energy companies seeking to diversify both sectorally and in terms of geography. And energy – notably the low-carbon variant – has emerged as a key focus for buyers.

Within the Mena region, the GCC remains the mainstay of deal flow, with its clutch of sovereign wealth funds (SWFs) and government-related entities (GREs) underpinning activity through transformative agendas that are shaped by government-led ambitions to shift away from oil and gas and embrace newer areas of the economy.

The figures underscore the Gulf bias in M&A deal flow. Ten of the Mena region’s highest-valued M&As in the first six months of 2024 were concentrated in the GCC region. 

The UAE and Saudi Arabia saw a combined 152 deals worth $9.8bn and were among the top Mena bidder countries in terms of deal volume and value, according to data from EY.

The largest transaction came in February, when private equity firms including Clayton Dubilier & Rice, Stone Point Capital and Mubadala Investment announced the acquisition of Truist Insurance Holdings, the US’s fifth-largest insurance brokerage, for $12.4bn – a sign that Gulf entities have the appetite and balance sheet to lock down opportunities in North America. 

Indeed, according to EY, the US remained the preferred target destination for Mena outbound investors in the first half of 2024, with 19 deals amounting to $16.6bn.

Meanwhile, Gulf-based SWFs dominate in regional M&A activity in terms of deal value. Consultancy Bain & Company says they represented 86% of deal value in 2023, either directly or through portfolio companies.

Industrial focus

Sector-specific drivers have come to the fore for some participants, and that is evident in the spread of M&A activity. Take Saudi Arabia’s Public Investment Fund (PIF), which acquired steel companies Al-Rajhi Steel and Hadeed last year, from Rajhi Invest and Saudi Basic Industries Corporation, respectively, creating a national champion in a domestic steel sector that has consolidated.

Similarly, Adnoc’s Covestro acquisition confirms the prominent role that national oil companies continue to play as they morph into energy companies with more diverse product slates, and in turn are required to grow inorganically at times. 

The Covestro deal represents a similar move to the PIF’s steel sector play last year. The German company would become a key plank in Adnoc’s ambition to create a speciality chemicals business. In a similar way, Borealis, in which Adnoc is a minority stakeholder, acquired Austrian chemicals group Integra Plastics in a deal announced in April 2024.

“The acquisitions from Adnoc are in line with a vision that they set out [in 2017], when the company restructured and broadened its scope to be a global business, looking actively for global opportunities to grow and diversify,” says Alice Gower, a partner at Azure Strategy.

She says that the interest in the European downstream sector is “a really smart move, because it not only ensures a market for their products, but it replaces Russian supplies and creates a dependency between Europe and, in this case, the Saudis or Emiratis”.

UAE companies’ interest in buying into European industrial firms has been evident this year. February saw Adnoc complete its long-running effort to acquire a 24.9% stake in Austrian petrochemicals firm OMV, and in May, state held Emirates Global Aluminium completed the acquisition of German aluminium recycling firm Leichtmetall Aluminium Giesserei Hannover. 

Another geographic theme has seen GCC firms target Asia and Africa – the latter increasingly a focus in terms of its resource opportunity, as well as its capacity to provide a growing consumer market with an emergent middle class.

Last year, Asia figured in some of the biggest deals involving Mena companies, such as the $2bn investment by the UAE’s Mubadala in Chinese fashion retail firm Shein, and Qatar Investment Authority’s purchase of a $1bn stake in India’s Reliance Retail Ventures.

Resources – particularly transition minerals – look set to remain a prominent theme for Mena dealmakers. In Africa, the UAE’s International Resource Holding, an affiliate of Sheikh Tahnoon Bin Zayed-headed International Holding Company, completed its acquisition of Zambia’s Mopani Copper Mine in March 2023, paying $1.1bn for a 51% stake. The UAE firm has moved into critical metals and sees this entity as playing a key role in developing the metal and mining supply chain.

Energy transition

The energy transition will continue to push Gulf acquirers’ M&A agendas. 

Abu Dhabi’s Masdar, eyeing a target 100GW of clean energy by 2030, has become an active M&A player. In June, it acquired a 67% stake in Greek company Terna Energy for $2.9bn. 

Deal flow at Masdar has been brisk, with a deal struck in September to acquire renewable energy provider Saeta Yield from US investment firm Brookfield for $1.4bn, handing it significant power assets in Spain and Portugal and a 1.6GW development pipeline. 

Masdar has also been growing its US foothold, closing a deal in October for a 50% stake in US renewables company Terra-Gen, which boasts a wind, solar and battery storage portfolio of 3.8GW.

Meanwhile, with the PIF and Mubadala both committed to net-zero targets by 2050, in addition to working to decarbonise their existing portfolios, the funds are investing in green assets and in technologies that support decarbonisation, notes Bain & Company. 

Azure Strategy’s Gower cautions against reading too much into the professed diversification agenda, however. 

“Everybody talks about diversification, but if you actually look at what they’re investing in, it’s not that far from the fossil fuel industry,” she says. 

“There is a vertical integration logic: you’re upstream and you want to then become more involved in midstream and downstream – that makes sense. But the businesses that they are buying are pretty low-margin, so there has to
be a different reason behind this approach.”

Instead, defensive motivations are in play. “It is about capturing shares in assets across different markets in order to spread risk, and then diversifying revenue streams away from direct exports, given their geographic location,” she says. 

“Look at what is going on in the region at the moment, and the increase in shipping costs, the instability and insecurity risk.”

Banking mergers

M&A in the Mena banking sector has slowed down in the past five years, following a spate of deals that mainly reflected the reordering of state holdings in large Gulf banks.

In March 2024, the Egyptian subsidiary of Bahrain’s Bank ABC completed its merger with the Egyptian subsidiary of Lebanon’s Blom Bank, tripling Bank ABC’s market share in Egypt.

Market speculation is now centring on consolidation within Kuwait’s banking sector.

The proposed merger of Boubyan Bank and Gulf Bank – Kuwait’s third- and fifth-largest lenders – would create an Islamic lender with assets of about $53bn.

“GCC banks in general have been keeping their options open because these are small, concentrated economies and markets, and therefore international expansion will help diversify business models and improve profitability,” says Redmond Ramsdale, senior director for banks at Fitch Ratings.

M&A moves have taken Gulf banks into the wider region. 

“External growth is part of some GCC banks’ strategy to diversify business models and improve profitability,” says Ramsdale. “By deploying capital into high-growth markets, they may be able to compensate for weaker growth in their home markets.”

In the wider Mena region, M&A activity in 2025 will be driven by the big regional SWFs and GREs. The need to decarbonise their portfolios will shape inorganic growth strategies as they look to buy lower-carbon assets ‘off the shelf’ to meet net-zero and emission-reduction targets.

With sizeable acquisition budgets at their disposal, these players do not lack the financial firepower to target assets that will help them meet their goals.

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James Gavin

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    Foreign interest in Syria’s oil and gas sector is growing as the government moves to revive the industry and elevated global energy prices improve the economics of new developments.

    A series of agreements signed in recent months has attracted some of the world’s largest energy companies, raising expectations that investment and production could accelerate.

    However, despite growing optimism, significant security, financial and regulatory challenges remain, which could constrain the pace of growth for years to come.

    Military control

    Optimism among foreign businesses about potential opportunities in the country was boosted in January this year when Syria’s central government regained control of most of the country’s oil and gas assets.

    On 13 January 2026, the Syrian government launched an offensive against the Kurdish-led Syrian Democratic Forces (SDF) in the territories of the Democratic Autonomous Administration of North and East Syria.

    The offensive was initially focused on eastern Aleppo Governorate, around the towns of Deir Hafer and Maskanah, and was expanded on 17 January to include Raqqa, Deir ez-Zor and Al-Hasakah Governorates.

    The offensive eventually led to Syria’s Omar and Conoco fields being seized, as well as the Tanak, Rmeilan and Suwaydiyah fields.

    The Omar field is Syria’s largest oil field and the Conoco field hosts Syria’s largest gas processing plant, which previously supplied several power stations, including the Jandar plant in Homs, one of the country’s largest.

    Before the outbreak of the Syrian civil war in 2011, this field produced about 10 million cubic metres of natural gas a day.

    On 18 January, an agreement was signed under which Damascus assumed administrative and security control over all major oil and gas assets previously held by the SDF in the northeast of the country.

    Wider market

    The push to take control of the oil and gas assets came ahead of the US and Israel attacking Iran on 28 February, which led to a regional conflict and disrupted shipping through the Strait of Hormuz.

    Disruption in the waterway – which normally transports about 20 million barrels a day (b/d) of oil and refined products, as well as around 20% of the world’s liquefied natural gas – triggered a surge in global energy prices and sent oil companies scrambling to develop resources that did not rely on the strait as an export route.

    Syria is increasingly being viewed as a potential option for major oil and gas development projects due to its significant unrealised reserves and its geographic position across the Mediterranean from consumer markets in Europe.

    Syria’s production currently stands at around 110,000 b/d, down from a peak of 380,000 b/d in 2011, according to a report published by the US-Syria Business Council in April.

    The country’s recoverable oil reserves are estimated at 2.5 billion barrels, and Syria also has significant gas reserves.

    In April, Yousef Qiblawy, chief executive of the state-owned Syria Petroleum Company (SPC), said his organisation aimed to double national production before 2027 and boost output to 800,000 b/d by the end of 2029, not including offshore production.

    He said: “Before the takeover of the northeast, we were producing 10,000-15,000 b/d.

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    In 2013, Russia’s Soyuzneftegaz signed an offshore exploration agreement with Damascus, but the project was abandoned during the civil war and never progressed to drilling.

    Making deals

    In recent months, a range of significant deals and meetings has raised expectations for the future of Syria’s oil and gas sector.

    On 11 May, SPC announced plans for Syria’s first-ever offshore oil and gas exploration project.

    The deep-water project is being carried out in partnership with US-based Chevron and Qatar’s UCC Holding.

    SPC said that it had, together with Chevron and UCC Holding, defined the boundaries of the offshore block, paving the way for finalising contracts and starting technical operations this year.

    The three companies previously signed a preliminary deal in February to evaluate offshore oil and gas exploration in Syrian waters.

    On 12 May, France’s TotalEnergies, state-owned QatarEnergy and US-based ConocoPhillips signed a memorandum of understanding (MoU) with SPC relating to the exploration of Syria’s offshore Block 3.

    Under the terms of the preliminary deal, the companies will carry out a technical review of the area.

    The agreement also established a framework for technical and commercial discussions related to exploration activities on the block.

    ConocoPhillips also signed another MoU in November last year, along with Houston-headquartered Novaterra Energy, focused on developing several gas fields and launching exploration programmes.

    This MoU included an agreement to rehabilitate the gas plant at the Conoco field in Deir ez-Zor province.

    At the time, Qiblawy said the agreement was expected to boost the country’s gas production by 4-5 million cubic metres a day within a year.

    On 8 May, the Croatian oil company INA and Hungary’s MOL announced that they had held a series of meetings with SPC focused on exploring options to restart INA’s oil and gas operations in Syria.

    They said a joint technical team established by INA and SPC was assessing the feasibility of INA resuming operations on its Syrian concessions by evaluating operational, technical, commercial and regulatory conditions.

    In 2011, oil and gas production at INA’s Syrian concessions had reached 37,300 barrels of oil equivalent a day.

    By the time the company suspended operations in Syria in 2012, it had invested approximately $1.1bn in the country and had built a gas processing plant at the Hayan gas field.

    Resuming activities

    In April, the managing director of London-headquartered  met with Syria’s president, Ahmed Al-Sharaa.

    Gulfsands is the official operator of Syria’s Block 26, but for 15 years after the start of the Syrian civil war, it could not access the asset.

    The company declared force majeure in late 2011 and, until recently, it was under the control of the Kurdish-led SDF.

    In a statement released after the April meeting with Syria’s president, John Bell confirmed that his company had recently regained access to Block 26, which he described as “an important milestone for Gulfsands and for Syria”.

    He added: “This development provides a strong foundation for the recommencement of operations and investment.

    “We are now back on the ground in Syria, working closely with SPC to accelerate towards a full resumption of activities.”

    Bell also said that, as a result of a global drive to diversify away from “traditional choke points like the Strait of Hormuz”, Syria had the potential to become “a new world energy hub”.

    In April, Saudi Arabia’s ADES Holding Company signed an implementation contract with SPC to develop several gas fields in Syria.

    In a statement, SPC said the scope of the deal with ADES included executing maintenance and development works on existing wells, in addition to drilling new exploratory wells within the agreed operational areas.

    It added that it expected the deal to increase gas production by 25% within the first six months and by 50% by the end of this year.

    Industry insiders are also watching US-based HKN Energy, which has close ties to the Trump administration, after Qiblawy said in January that the company had expressed interest in entering the Syrian oil and gas sector.

    In April, a statement from the US-Syria Business Council said an MoU with HKN was “in the pipeline”.

    Over recent months, expectations have been building about a potential deal involving US-based oil and gas companies Baker Hughes, Hunt Energy and Argent LNG.

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    In a separate statement in April, Hunter Hunt, chief executive and chairman of Hunt Oil Company, said: “President Sharaa’s vision is bold, it is comprehensive, and it is full of execution and getting things done … We like what we see on a forward-looking basis.”

    Challenges remain

    While SPC’s Qiblawy has outlined ambitious targets to increase oil and gas production and international interest in the sector is growing, significant obstacles remain.

    A report published by the US-Syria Business Council in April highlighted several risks facing prospective projects. Among the most significant is the threat posed by Islamic State, particularly to pipeline infrastructure crossing remote desert regions.

    The report warned that securing large stretches of sparsely populated territory remains difficult, increasing the risk of attacks on critical energy infrastructure.

    It also highlighted the possibility of renewed conflict in northeastern Syria, where the SDF previously controlled many of the country’s most important oil and gas assets. According to the report, the current ceasefire remains fragile and any deterioration in relations could reignite territorial disputes.

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    For international energy companies seeking opportunities outside traditional export routes and geopolitical chokepoints, Syria is increasingly emerging as a market with significant long-term potential, albeit one accompanied by substantial risk.

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