DOHA: Gulf investors are cautiously investing overseas again. Over the last five years, there has been more deal value flow from this largest high growth markets (HGM) to mature market economies than in the other direction.
A look at the volume and value of deals by investors from the Gulf Cooperation Council (GCC) over the past six years highlights the outbound M&A activity to the mature markets of North America, Europe and the UK fell from a peak of over $40bn in 2007, to lows of $5.3bn in 2010 and 2012. Whilst deal volume fell precipitously between 2008 and 2010, the number of outbound deals returned to growth in 2011 with 2012 deal volumes back above the last five-year average, a new report by PwC noted.
The GCC region’s sovereign wealth funds (SWFs) and state-owned enterprises continue to drive much of the outbound deal value but have cut back on the size of their overseas investments into mature markets. To some degrees this reflects more exuberant investing during the pre-financial crisis which has moderated since. On average, five outbound deals per annum have been responsible for 75 percent of total outbound deal value 2006-2012.
“In line with its strategy to establish Doha as a financial hub, Qatar has invested heavily in financial services, including stakes in the London stock exchange and numerous real estate assets. It has also made some higher profile financial investments, largely in the UK and France. The UAE and Saudi Arabia have both made numerous acquisitions to acquire technology and know-how, in particular in areas such as energy and chemicals. Many of the 2007 deals are still being worked through and include larger investments into real estate, energy and chemicals, all sectors which remain of interest now and in the future,” PwC analysts noted.
The PwC research of HGM buyers has demonstrated that certain deal drivers are common to most of HGM buyers but each specific market has its own nuances. This is particularly true for the Gulf region, where SWFs and state-owned enterprises have used M&A to diversify their financial reserves, invest in capturing technology within the value chains they most understand, eg energy and petrochemicals, and develop sectors that will provide local employment and growth over the long-term like semidconductors and aerospace. To diversify reserves, the Gulf SWFs have continued to invest in higher value property portfolios overseas.
The UK and Europe maintain a strong appeal for buyers from the region, accounting for the large majority of all mature market deals. The value of deals into Europe though is smaller than the volume and the fewer US deals that have occurred since the financial crisis may turn around now that the US economy is showing sign of growth again.