There has been a recent upsurge in dealmaking between the areas, as evidenced by Abu Dhabi’s ADNOC’s aim to acquire German chemical producer Covestro for 11.7 billion euros ($12.74 billion). This would be the largest European purchase by a Middle Eastern buyer in at least 16 years.

According to Dealogic, more than $24 billion in purchases of European assets by Middle Eastern purchasers have been announced or closed thus far this year. This is a 74% increase over the average for the previous ten years and the largest since at least 2008.

From just $4.9 billion around the same time last year, it has increased.

According to advisors and experts who spoke to Reuters, Gulf investors are driven to Europe by the continent’s lower corporate values than the United States, more lenient regulations for purchasers from the area, and more welcoming investment requirements.

“Strategic investors from the Middle East are now much more comfortable making investments in Europe,” said David Martin, a corporate partner at Linklaters and a key figure in the establishment of the legal firm’s Abu Dhabi office.

“There is a need in Europe, especially on some of the very large infrastructure projects, for deep pocketed investors” .

According to Miguel Azevedo, vice-chairman of Citi’s investment banking for the Middle East and Africa, investors from the area also contribute their experience to these kinds of initiatives.

“The UAE have a very clear strategy of creating global champions in the industries they know well and they perform well in,” he said. “They have experience, vision and the capital to do so. They are very business-driven and politically they are seen positively.”

According to LSEG statistics, European stock market valuations, as indicated by their price-to-earnings ratios, have been declining recently in relation to both their historical values and the U.S. market.

According to Diego Lopez of the tracker for sovereign wealth funds Global SWF, “attractive valuations and lower investment scrutiny and geopolitical risk are valid reasons for (Gulf Cooperation Council) investors,” stressing their emphasis on energy and infrastructure assets.

Reports state that the Committee on Foreign Investment in the United States (CFIUS), which oversees the implications of foreign investments for national security, has previously prohibited parties from the Middle East from holding specific properties.

According to Bloomberg News, in November of last year, the administration of President Joe Biden compelled a venture capital firm supported by Saudi Aramco to sell its stake in a Silicon Valley AI chip business founded by Sam Altman, the co-founder of OpenAI.

Cross-border transactions in Europe are examined by each nation independently, despite the European Commission’s desire for more unified oversight.

Lopez said that compared to the U.S., inspection was often less severe.

“Certain EU countries have been setting up national bodies akin to CFIUS, but they are generally more lenient.”

But things are not always easy.

According to persons with firsthand knowledge of the proceedings, last month’s breakdown of talks for a potential purchase of the $22 billion Spanish energy company Naturgy was partly caused by differences over future governance between TAQA of Abu Dhabi and the company’s main shareholder.

The state-backed Abu Dhabi power and utility firm, Criteria, Naturgy, and the shareholder all declined to comment.

Although regulatory worries might not be as significant in Europe as they are in the US, businesses looking to partner in the EU have encountered political obstacles.

The Saudi business STC’s purchase of a portion of Telefonica was openly criticised by the Spanish government, and STC still hasn’t converted any of its holdings—4.9% of shares and financial instruments giving it an additional 5%—into voting shares, which needs official government permission.

Madrid has paid about 2.3 billion euros to purchase a 10% share in the company in order to offset STC’s acquisition, despite the fact that it has not publicly announced its decision to convert.

Officials in Britain only approved the acquisition of a 14.6% share in Vodafone by the Abu Dhabi-based telecoms business e& after directing the British telecoms group to take action to mitigate threats to national security that they believed the merger presented.

In the end, Britain also thwarted a firm sponsored by Abu Dhabi from acquiring the Telegraph newspaper.

Tie-ups require time as well.

The talks between ADNOC and Covestro began over a year ago, while ADNOC and the oil and gas major OMV in Austria have also been in talks for a year to form a chemicals conglomerate with combined yearly revenues exceeding $20 billion. ADNOC chose not to respond.

Martin of Linklaters stated that tighter screening of foreign investors and antitrust laws were the reasons behind certain agreements taking longer to finish.

“In certain strategic sectors, any investor from outside of Europe who is making a material investment in a European asset is likely to be subject to scrutiny. This adds layers of scrutiny and complexity.”

(Adapted from MarketScreener.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy