meed-logo

line1 line2 line3
SIGN IN / REGISTER

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.

https://image.digitalinsightresearch.in/uploads/NewsArticle/12744105/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Dubai budgets to increase construction spending by 18%

    30 October 2024

    Dubai has announced its budget for 2025 with a 9% increase in government spending, which includes an extra $1.6bn allocated for construction and infrastructure when compared to the approved budget for 2024.

    Of the AED86.26bn of planned spending, 46%, or AED39bn ($10.6bn) will be allocated for construction and infrastructure schemes. “These projects encompass roads, tunnels, bridges, transportation systems, sewage stations, parks, renewable energy facilities, and the rainwater drainage network development plan. This also includes the recently announced Al Maktoum Airport development project and other initiatives supporting quality of life and promoting smart and sustainable transportation strategies in Dubai,” the emirate’s finance department said in a statement.

    The spending on construction and infrastructure planned for 2025 is 18% more than the AED33.2bn allocated for 2024.

    Increasing construction spending will help the emirate overcome some of its most pressing infrastructure challenges. Traffic has developed into a major issue for many residents and businesses in Dubai, and over the past year, the emirate’s Roads & Transport Authority (RTA) has pressed ahead with a series of road projects aimed at alleviating congestion. The most recent road project to be announced is the AED696m upgrade to Trade Centre Roundabout in Dubai.

    Metro plans

    A new metro line is also planned. In October, contracting consortiums submitted bids for the contract to complete a new Blue Line that will form part of the Dubai Metro network. The lowest-priced base offer received for the contract was valued at AED22.3bn. The project was given a budget of AED18bn when approved by the government in late 2023.

    Another infrastructure concern is maintaining Dubai’s status as a leading global aviation hub. Dubai International Airport is operating at close to capacity, and with no room to add to its two existing runways, a major new airport project is planned at Al Maktoum International Airport. Designs for that project, valued at $35bn, were approved by the government in April and all operations at Dubai International airport are scheduled to move there within 10 years. Tendering for major construction contracts is expected to start in 2025.

    Another pressing infrastructure concern is drainage. Widespread flooding in April this year exposed many shortcomings of the emirate’s infrastructure. In June, the government approved a AED30bn project known as Tasreef, which will enhance the capacity of Dubai’s rainwater drainage system by 700%, covering all areas of the emirate.

    The emirate’s sewage system will also be upgraded with the $22bn Dubai Strategic Sewerage Tunnels (DSST) projects. This project will be delivered as a public-private partnership. Potential investors submitted their statements of qualifications (SOQs) in late October.

    Spending approval

    The 2025 budget was approved by Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai on 29 October.

    The estimated expenditure for 2025 is a 9% increase on the AED79.1bn of spending that was budgeted for 2024 in November 2023. As well as expenditure of AED86.26bn for 2025, revenues are projected to be AED97.66bn. The budget also includes a general reserve of AED5bn.

    The 2025 budget also allocated 30% of government expenditures to the social development sector. This encompasses health, education, scientific research, housing, and support for needy families, women, and children. It also includes investments in youth and sports, and care for the elderly, retirees, and people of determination.

    The security, justice, and safety sector will receive 18% of total expenditures. The emirate has also allocated 6% of spending to support the public services sector, government excellence, creativity, innovation, and scientific research.

    The 2025 budget is part of the three-year budget cycle for 2025-2027 which was also approved by Sheikh Mohammed. It has a total expenditure of AED272 billion and a total revenue of AED302 billion. It is the largest in the emirate’s history.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/12820502/main.jpg
    Colin Foreman
  • Dubai receives $22bn tunnels investor prequalifications

    30 October 2024

     

    Register for MEED's 14-day trial access 

    Potential investors have submitted their statements of qualifications (SoQs) for a contract to develop and operate various packages of the $22bn Dubai Strategic Sewerage Tunnels (DSST) project.

    MEED understands that the project client, the Dubai Municipality, received SoQs from over a dozen companies, including several prequalified as engineering, procurement and construction (EPC) contractors for the project’s first four packages.

    According to industry sources, the companies that are keen to prequalify as investors or sponsors of the planned public-private partnership (PPP) project include:

    • Abrdn Investcorp Infrastructure Investments Manager (UK)
    • Besix (Belgium)
    • China Railway Construction Corporation (CRCC)
    • China Railway Engineering Group (CREG)
    • China State Construction Engineering Corporation (China)
    • Itochu (Japan)
    • Plenary (Australia)
    • Samsung C&T (South Korea)
    • Vision Invest (Saudi Arabia)
    • WeBuild (Italy)

    The project client and its consultants held a consortium match-making event for prospective contractors and sponsors or investors in Dubai on 7 October.

    MEED previously reported that the bidders for the six PPP packages would be prequalified consortiums comprised of sponsors or investors; EPC contractors; and operations and maintenance contractors.

    The overall project will require a capital expenditure of about AED30bn ($8bn), while the whole-life cost over the full concession terms of the entire project is estimated to reach AED80bn.

    The investor prequalification process for the scheme comes after the client prequalified EPC contractors that can partner with the developers or investors to bid for the contracts.

    MEED understands that packages J1 and W will be tendered together as separate contracts first, followed by J2 and J3, with the requests for proposals to be issued sequentially, staggered about six to 12 months apart.

    Dubai Municipality is expected to invite prequalified companies to submit bids for the contracts to develop the first two packages of the DSST project in the fourth quarter of 2024.

    DSST packages

    Under the current plan, the $22bn DSST project is broken down into six packages, which will be tendered as PPP packages with concession periods lasting between 25 and 35 years.

    The first package, J1, comprises Jebel Ali tunnels (North) and terminal pump stations (TPS). The tunnels will extend approximately 42 kilometres (km), and the links will extend 10km. 

    The second package, J2, covers the southern section of the Jebel Ali tunnels, which will extend 16km and have a link stretching 46km.

    W for Warsan, the third package, comprises 16km of tunnels, TPS and 46km of links.

    J3, the fourth package, comprises 129km of links.

    J1, J2, W and J3 will comprise the deep sewerage tunnels, links and TPS (TLT) components of the overall project.

    J1, J2 and W will be procured under a design-build-finance-operate-maintain model with a concession period of 25-35 years.

    J3 will be procured under a design-build-finance model with a concession period of 25-35 years. Once completed, Dubai Municipality will operate J3, unlike the first three packages, which are planned to be operated and maintained by the winning PPP contractors.  

    The project’s remaining two packages entail expanding and upgrading the Jebel Ali and Warsan sewage treatment plants.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/12804424/main.jpg
    Jennifer Aguinaldo
  • Chinese firm wins facade work on world’s tallest tower

    30 October 2024

    Register for MEED’s 14-day trial access 

    Saudi Binladin Group (SBG) has awarded Beijing-headquartered Jangho Group a facade works contract on what will be the world’s tallest tower – the 1,000-metre-plus Jeddah Tower in Saudi Arabia.

    Jangho Group will provide engineering design and technical services for the project’s structural glass and adhesive curtain walls.

    The announcement comes after the client, Jeddah Economic Company (JEC), signed an estimated SR8bn ($2.1bn) contract with SBG to resume construction work on the project.

    When completed, Jeddah Tower will be more than 172 metres taller than the 828-metre-tall Burj Khalifa, the world’s tallest building since 2009.

    Jeddah Tower’s superstructure is about one-third complete, with 63 floors out of a total of 157. SBG was the main contractor on the project in the early and mid-2010s. Germany’s Bauer completed the tower’s piling work.

    The architect is US-based Adrian Smith & Gordon Gill, and the engineering consultant is Lebanon’s Dar Al-Handasah (Shair & Partners).

    Jeddah Tower is the centrepiece of the Jeddah Economic City development. The project’s first phase, which includes the main tower, covers an area of 1.5 million square metres.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/12819518/main.jpg
    Yasir Iqbal
  • TotalEnergies $11bn hydrogen project starts pre-feed

    30 October 2024

     

    France’s TotalEnergies has started the pre-front-end engineering and design (feed) for its planned $11bn integrated project to produce green hydrogen and ammonia in Morocco, according to a company spokesperson.

    TotalEnergies signed the joint development agreement with the relevant authorities and ministers in Morocco on 28 October, during French President Emmanuel Macron’s visit to the North African state.

    It was previously reported that the planned integrated facility would be located in Guelmim-Oued Noun in southern Morocco.

    TotalEnergies’ chairman and CEO, Patrick Pouyanne, signed the agreement for the local production of green hydrogen and ammonia in the presence of Morocco’s King Mohammed VI and Macron.

    The counterparties included Morocco’s Energy Minister, Leila Benali; Economy and Finance Minister, Nadia Fattah; Interior Minister, Abdelouafi Laftit; and Minister Delegate in charge of Investment, Karim Zidane.

    It is understood that the project will require the development of 10GW of solar and wind energy and a land area of 187,000 hectares.

    It was reported that Morocco’s Unified Regional Investment Commission had approved the project’s launch in November 2022.

    The other agreements signed during Macron’s visit to Morocco cover financial cooperation in the rail, forestry, aviation, logistics and energy sectors, with a particular focus on decarbonisation and energy transition.

    TotalEnergies has been exploring green hydrogen and other related projects in the Middle East and North Africa region.

    In August, the Courbevoie-headquartered firm and Abu Dhabi Future Energy Company (Masdar) signed an agreement to assess the viability of developing a commercial green hydrogen-to-methanol-to-sustainable aviation fuel (saf) project.

    It is also among the early investors in UK-based Xlinks First, which aims to deliver the $18bn Morocco-UK power interconnector project. TotalEnergies acquired a minority stake in the company following an investment of $25.4m announced in November last year.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/12819510/main.gif
    Jennifer Aguinaldo
  • Decarbonising steel is hard to resist

    29 October 2024

    Commentary
    Jennifer Aguinaldo
    Energy & technology editor

    A pilot green hydrogen plant supplying a small amount of colourless gas that will be used to extract iron from iron ore – a key steelmaking step – is not a big deal, especially given the multibillion-dollar industrial and petrochemicals investments that this region has grown accustomed to over the past decades.  

    The project can be seen as a just one element of Abu Dhabi's multi-pronged strategy to decarbonise large swathes of its economy, given that the client for this project, the newly rebranded Emsteel, holds a 60% share in the local steel industry and exports products to about 70 countries.    

    The global steel industry accounts for about 7% of annual greenhouse gas (GHG) emissions.

    On one hand, it will take a lot more than a few electrolysers to produce hydrogen that will be used to further decarbonise Emsteel's production and operations; on the other, a small first step is required to make a future big leap given the enormity and urgency of the challenge, and the vast investment it requires.

    Specific details are sparse regarding the pilot plant and the future timeline to scale hydrogen production at Emsteel's manufacturing complex in Abu Dhabi.

    However, as the executives of Emsteel and its hydrogen partner, Abu Dhabi Future Energy Company (Masdar), have said, the completion of the pilot project is a vital first step towards producing certifiable green steel, which is expected to enjoy brisk demand as pressures to decarbonise sectors such as construction increase across the globe.

    As it is, Emsteel's credentials include being the world's first steelmaker to capture part of its carbon dioxide emissions, thanks to Abu Dhabi National Oil Company's (Adnoc) Al-Reyadah carbon capture, utilisation and storage facility. This has enabled the company to operate with "45% less carbon intensity than the global average". Its utilisation of clean energy also rose above 80% last year.

    Today, from the vantage point of the stakeholders, the specific details of the pilot project matter less than what it signifies, which is that Abu Dhabi intends to become a major green steel producer, and that it can transform a hard-to-abate sector into a hard to resist one.

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/12812275/main.jpg
    Jennifer Aguinaldo