RIYADH: Saudi Arabia led the Middle East in chemicals mergers and acquisitions in the first quarter of 2024, with deals worth $500 million, according to the latest data.
Total M&A deals in Saudi Arabia reached $955 million during the period, of which the chemicals sector accounted for 52.4 percent, according to data from financial markets platform Dealogic.
Saudi Arabia has been the only country in the region to show activity in the sector, with a report published earlier this month by management consulting firm Kearney suggesting chemical industry executives expect more M&A led by strategic investors such as the state oil company.
“Recent transactions by major players such as Aramco and ADNOC underscore the region's determination to use M&A as a key growth lever, setting the stage for dynamic and transformative times ahead,” said Jose Alberich, Kearney's Middle East and Africa partner at the time.
The professional services sector was the second most targeted sector, with deal value of $160 million, accounting for 16.8% of the Saudi Arabian total, according to Dealogic figures.
The technology sector followed with $138 million in deal volume, capturing a 14.5% share.
Retail and insurance accounted for 7% and 4.1% of the total, respectively.
Entire region
Figures show that Middle East-targeted M&A deal value reached $6.21 billion in the first three months of the year, with the technology sector leading the way with a total of 42 deals worth $1.56 billion.
The financial sector followed with nine deals totaling $1.3 billion, while the oil and gas sector, which topped the list a year ago with $3.5 billion in deals, dropped to eighth place with just $273 million in deals.
Domestic deals were the main contributor, accounting for 55% of Middle East M&A deal volume with 91 deals, according to Dealogic. In contrast, cross-border deals totaled 38, accounting for 45%.
Kuwait was the largest contributor to total M&A deals among GCC countries, reaching a total of $1.12 billion, all of which were foreign transactions.
The UAE followed with $988 million in transactions, of which 58 percent was domestic.
Saudi Arabia came in third with $955 million from 18 deals, 60 percent of which were international.
Compared to the same quarter in 2023, Middle East deal volumes fell 27%.
Global economic slowdown
Dealogic explained in its report that global M&A activity fell significantly during the period, with deal counts falling 31% to 7,162, making it one of the quietest quarters for dealmakers in nearly two decades.
The economic slowdown is mainly due to rising capital costs, with Switzerland being the only major economy to cut interest rates in 2024.
Additionally, geopolitical tensions, including the Middle East emerging as a new conflict hotspot amid the ongoing conflict with Russia over Ukraine, and tensions between Washington and Beijing over Taiwan, further contributed to the slump in deal activity.
Driving force behind our activities
In a September report, Boston Consulting Group said government support has been driving significant M&A activity by emerging market companies in recent years, particularly in the Middle East, as companies look to expand their global presence.
Saudi Arabia's SABIC acquired a 31.5 percent stake in Clariant, approaching the 33.3 percent threshold for a compulsory takeover under Swiss law.
The UAE's national oil company ADNOC has bought a 24% stake in OMV, increasing its indirect holdings in Borealis and Volouge and is in merger talks between the two companies.
ADNOC made an $11 billion takeover bid for Covestro that was rejected and has also expressed interest in Brazil's Braskem. These moves highlight a trend of using government support to strengthen regional footholds and integrate into global value chains.
Additionally, Saudi Aramco acquired Valvoline's global products business for $2.7 billion in 2023. The acquisition will strengthen Aramco's lubricants portfolio by integrating Valvoline's manufacturing and distribution network and research and development capabilities, according to BCG.
The survey further highlighted three key reasons driving the shift in macro trends in M&A, portfolio diversification, vertical integration and technology acquisitions.
Companies are increasingly expanding their portfolios through acquisitions, often over long periods of time, to enter new markets and product segments. Furthermore, the focus is shifting from traditional feedstock-focused acquisitions to sustainable diversification of the petrochemical value chain, prioritizing businesses with higher margins and less cyclical exposure.
This means that the focus is now on achieving sustainable and balanced growth across the petrochemical value chain, rather than on acquisitions primarily aimed at securing raw materials. Priority is now given to investing in businesses that generate higher returns and are less vulnerable to market volatility. This shift is aimed at building a more resilient and profitable business model in the long term.
This strategic focus on specialty products is driving vertical integration into the downstream segment, as evidenced by major acquisitions by industry leaders such as Saudi Aramco, SABIC, Thailand's PTT and Malaysia's Petronas.
According to the BCG paper, gaining or maintaining technology leadership is a key driver of M&A activity. Acquisitions and joint ventures are essential to position companies as key suppliers in the e-mobility sector and the related electronic chemical and battery industries.
As the demand for sustainable solutions grows, companies are increasingly realizing the potential of e-mobility. Through strategic M&A, including technology acquisitions and R&D investments, companies are looking to gain a competitive advantage in this rapidly expanding market.
According to Dealogic, technology-focused deals accounted for 21% of global M&A activity in the first three months of 2024, followed by healthcare at 14% and finance at 11%.
The oil and gas sector accounted for 9 percent, utilities and energy 7 percent, and real estate and property 5 percent of total M&A activity.
AI to raise funds
The Dealogic report highlighted that the world's largest technology deals were driven by artificial intelligence. The AI surge has significantly increased Nvidia's market capitalization to $2.4 trillion, with the company investing in seven AI-related companies during the period.
Saudi Arabia also plans to set up a $40 billion fund dedicated to investing in artificial intelligence, The New York Times reported in March.
The project, reportedly scheduled to begin in the second half of 2024, is being spearheaded by Saudi Arabia's Public Investment Fund and aims to attract partnerships from U.S. venture capital firm Andreessen Horowitz and other financial institutions.
The New York Times reported at the time that the company would focus on backing a variety of AI-related ventures, including chipmakers and large data centers in Saudi Arabia.
