UAE's SWFs emerge top players in M&A arena

Sovereign Wealth Funds (SWFs) from the UAE have emerged as leading investors in the mergers and acquisition (M&A) landscape.

According to data provided exclusively to Emirates Business by Bureau van Dijk Middle East (BvDME), GCC-based corporates and institutions have made acquisitions worth $37.9 billion (Dh139.1bn) since the beginning of 2009, of which UAE firms alone have been involved with deals worth more than $28bn, or 73.9 per cent of the M&As.

According to BvDME data, two of Abu Dhabi's investment units – Aabar Investments and International Petroleum Investment Company – have, along with their partners, been involved in acquisition deals worth almost $20bn, or more than 50 per cent of the total acquisitions made by GCC entities. "The region's largest SWFs, particularly in Qatar and Abu Dhabi, are emerging as major investors, interested in sectors ranging from financial, commodities to real estate," said Paul Costers, Manager, BvDME.

Analysts see the fact that the UAE-based funds have been active during a time when the global M&A landscape has been shrinking as a proof of their wealth and astute investment strategy.

"In context of the global M&A slowdown in 2009, you will see that the SWF activity has been higher relative to that of other players," confirmed Vikas Papriwal, Partner, Country Head – SWF and PE practice, KPMG. "Regionally, the ones in the UAE and Qatar have been active. We've seen a bit of Kuwaiti acquisitions as well," he added.

However, Papriwal argues that while the SWFs' share of M&A activity has gone up during the past 14 months, that may be because the overall pie has shrunk.

"It isn't that the SWF activity has been substantially higher [in value terms] but it is a much more relative phenomenon that we've seen," Papriwal pointed out, highlighting that SWFs provided much-needed liquidity during the global credit crunch.

"One reason [for M&A slowdown] is the fact that leverage completely dried up in 2009. For SWFs, that isn't necessarily a big hindrance. Besides, the fact that they are sovereign-backed has enabled them in drawing better leverage," he said.

Going forward, experts agree that SWFs will continue to play a significant role in the regional and global M&A landscape. "They will stimulate M&A activity in a very significant way," said BvDME's Costers.

"Absolutely," agreed Papriwal. "We're dealing with a number of clients that we can't name due to confidentiality concerns, but we definitely see SWFs continuing to be active [in the M&A landscape] this year," he said.

Having failed to assess the impact of the economic slowdown early on, thousands of organisations across the world are said to be undergoing financial and operational restructuring.

The same is true in the region as well.

"Corporate restructuring and divesting in the wake of the financial crisis will continue to drive M&A activity," said Costers.

"Certain fragmented sectors are really ripe for consolidation," he added.

While Papriwal agrees, he believes that the overall impact of restructurings has been less than expected so far. "Having said that, however, we absolutely see corporate restructuring as having an impact on the M&A landscape," he added.

Papriwal also expects family businesses in need of capital to play a larger role in the M&A landscape than before as some of them consolidate around their core operations and shed non-core assets.

"We've expected it to be a trend for some time now but it hasn't been one so far," Papriwal said.

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