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M&A market boosted by energy deals

24 October 2024

 

The mergers and acquisitions (M&A) market in the Middle East and North Africa (Mena) region received a significant boost on 1 October, when Abu Dhabi National Oil Company (Adnoc) finally secured agreement from German chemicals firm Covestro for a takeover worth €14.7bn ($16.1bn).

Assuming it is completed, it will be the largest acquisition to date by Adnoc, which is no stranger to large M&A transactions. Indeed, just 10 days later, the UAE energy giant said it had received all the necessary approvals to complete its purchase of a 50% stake in another chemicals producer, Fertiglobe, from Dutch-listed OCI, taking its total shareholding in the business to 86%. That €3.6bn deal had been announced in mid-December 2022.

Adnoc has been chasing the Covestro deal for some time, steadily ramping up its offer from an initial €55 a share to the eventual €62 a share. 

On current projections, it looks set to be the biggest M&A deal involving a Mena company this year. Data compiled by LSEG Data & Analytics, part of the London Stock Exchange Group, points to it being among the 10 largest M&A deals anywhere in the world this year.

Rebounding trend

Overall, there were $46.6bn-worth of M&A deals involving a Mena company in the opening half of the year, according to LSEG. This was a 48% increase on the same period of 2023, by LSEG’s metrics, and was similar to the levels seen in 2020-22.

Of that, $28.6bn were deals involving a target company outside the region – the highest level for outbound deals in the first half of a year since 2007.

There were a further $17.6bn-worth of deals involving a Mena target company from January to June, of which $11.2bn were being pursued by acquirers from outside the region.

Deals with both a local acquirer and target amounted to $6.3bn – down 12% year-on-year and now at a seven-year low.

Beyond the Covestro transaction, there have been at least nine other deals worth more than $1bn so far this year. These include a $1.1bn deal for Austrian aircraft leasing company Macquarie AirFinance to buy a portfolio of 23 aircraft from Kuwait’s Alafco Aviation Lease & Finance. The deal was announced in February and followed a similar deal in 2023 between the two companies.

Others include a deal by Adnoc Logistics & Services to acquire oil tanker operator Navig8 for up to $1.5bn in a two-stage transaction; Microsoft’s investment of $1.5bn for an undisclosed stake in the UAE artificial intelligence (AI) company Group 42; and a $2bn investment by Alat, a subsidiary of Saudi Arabia’s Public Investment Fund, in convertible bonds issued by Chinese technology company Lenovo Group.

Abu Dhabi Future Energy Company (Masdar) has also been on the acquisition trail, announcing a $2.7bn investment in Greek renewable energy company Terna Energy in July. The same month, it also announced a deal with Italian firm Endesa to invest €817m for a 49.9% stake in a portfolio of 48 solar power plants with a total capacity of 2GW. 

In September, Masdar announced a plan to buy energy developer Saeta Yield for $1.4bn, adding 745MW of wind and solar generating capacity in Spain and Portugal.

As with the Adnoc/Fertiglobe deal, other big transactions announced last year have been completed this year. Among them is the $1.4bn merger of Abu Dhabi Securities Exchange-listed Al-Yah Satellite Communications Company and Bayanat AI, which was unveiled in December and completed on 1 October.

There were $46.6bn-worth of M&A deals involving a Mena company in the opening half of the year

Not always a done deal

Not all announced deals go through, however. In April, Dubai-based engineering consultant Dar Al-Handasah Shair & Partners Holdings (Sidara) approached London-listed John Wood Group with a takeover offer. By late May it had made a fourth and final offer valuing the Aberdeen-headquartered firm at £1.6bn ($2.1bn). However, in early August Sidara backed out saying “in light of rising geopolitical risks and financial market uncertainty” it no longer intended to make a firm offer.

Even with such setbacks, the UAE has been the most active market for M&A deals in the first half of the year. Of the announced deals involving a Mena target, $9.7bn-worth have been for a UAE firm, according to LSEG. Saudi Arabia is in second place, with $3.1bn of the total.

On a sectoral basis, the financial services industry has accounted for most of the deals involving a Mena target, with $6.3bn of the total. Technology and telecommunications companies accounted for a further $3.2bn, while deals involving materials and industrial companies totalled $2.8bn and energy and power company deals were worth $1.6bn.

According to professional services firm Ernst & Young (EY), the region’s sovereign wealth funds, such as Abu Dhabi Investment Authority (Adia), the UAE’s Mubadala and Saudi Arabia’s PIF, have continued to lead the deal activity in the region, as they push ahead with government-directed efforts to diversify their home economies.

While the likes of Covestro and Terna are European, overall, it is the US that is the main destination for outbound M&A deals, according to EY. However, there have been some major deals announced involving other parts of the world too. In March 2024, Mubadala and Adia joined a consortium that spent $8.3bn to acquire a 60% stake in Chinese shopping mall manager Zhuhai Wanda.

Detailed data is not yet available for third-quarter activity in the Mena region, but the global trends point to a fairly active market. According to LSEG, global completed M&A advisory fees reached $23bn in the first nine months of the year, a 3% increase on the same period of 2023

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Dominic Dudley

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