Mega infrastructure projects drive M&A activities
Mega infrastructure projects in the GCC are rapidly becoming one of the main driving forces behind M&A activity in the region.
As a consequence, much of the activity revolves around establishing joint ventures for greenfield projects.
Petrochemicals and heavy industry manufacturing are proving to be a big draw for international companies wanting to establish a presence in the region. Abu Dhabi is seen to be particularly appealing, with the government encouraging international firms to establish equity partnerships with local companies.
At the same time, the emirate's sovereign wealth funds are using their considerable wealth to buy stakes in companies in other parts of the world, such as Europe and the US, in order to gain knowledge that can be transferred to the emirate to build sustainable industries.
Saudi Arabia is following a similar strategy with its economic zones. A key difference between the UAE and Saudi Arabia, however is that the latter allows 100 per cent foreign investment in companies. Practically though, a joint venture arrangement is preferred.
Logistics is another sector, which is likely to see increasing M&A activity in the region, as the UAE in particular further strengthens its position as a logistics hub. For example, Turkey's Ekol Logistics is looking to broaden its reach across the region and one area where opportunities lie, according to industry experts, is in the provision of logistics for the pharma sector.
Moreover, the establishment of the region's first Centre of Excellence for Logistics and Supply Chain Management at Abu Dhabi University is likely to be a catalyst for more international companies looking to get a foothold in the region. For most, acquisitions are the best way to do this.
A great deal of the investment activity across Middle East and North Africa (Mena) is in the renewable energy sector. Many of the deals being transacted are crossborder between regional companies and European and US ones. Solar and wind projects in the GCC are also particularly appealing to European renewable energy companies and private equity firms, and greenfield joint venture projects are the best way forward.
These companies are scouting the regions for the best investment opportunities and there is no doubt that one of the main reasons for this is the high profile Masdar City has achieved around the world.
But the search for renewable energy companies in which to invest is not one way. To ensure the UAE stays ahead of the pack, local companies are investing abroad, looking to acquire stakes in wind turbine manufacturers or photo voltaic film manufactures in. the US and Europe. Regional private equity firms seem to be especially keen on this type of investment.
Over coming months, it also appears likely that more GCC companies will be buying stakes in Latin American firms as business delegations from the UAE and Bahrain go to investigate the opportunities in these markets.
The formation of the Latin America-GCC Council is surely a precursor not only to closer ties but greater crossborder M&A activity. Driven by the need for food security, investment in agriculture is likely, but there is also likely to be increasing investments in sectors such as oil and gas, tourism and manufacturing. M&A crossborder activity between this region and the rest of the world is set to grow.
- The author represents Mergermarket Group in the Gulf
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