Gulf sovereign funds set for bigger role in global M&As

European deals involving SWFs from the Middle East have been tracking up over the past decade

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Published: Thu 30 May 2024, 10:02 PM

Sovereign wealth funds from the GCC, including three SWFs of the UAE, are on track to play an increasing role in European and global mergers and acquisitions in the years ahead.

Five SWFs from the GCC --- Abu Dhabi Investment Authority (Adia), Mubadala and ADQ, Public Investment Fund (PIF) from Saudi Arabia, and Qatar Investment Authority (QIA) – are heavyweights in the top ten players looking to step up their role in overseas M&As, particularly when it comes to capital-intensive projects, says Mergermarket. SWFs from the Middle East have also been taking environmental, social, and governance issues increasingly seriously, so energy transformation is one area to watch.

According to the Sovereign Wealth Fund Institute, the region’s ten largest sovereign wealth funds manage nearly $4 trillion. These include Adia ($943 billion), Kuwait Investment Authority ($803 billion), PIF ($700 billion) and QIA ($450 billion).

European deals involving SWFs from the Middle East have been tracking up over the past decade, with the pre-pandemic year of 2019 representing a high-water mark of EUR 12 billion over ten deals, according to Mergermarket data. Deal volumes came close in 2022 and 2023, with EUR 11.9 billion.

"Sovereign wealth funds from the Middle East have built expertise as limited partners (LPs) in funds run by other investors. However, most have increasingly been building their investment capabilities in recent years,” says Rupert Cocke, senior editor of Mergermarket EMEA.

"If the trend continues, we can expect SWFs to play an increasing role in European and global M&A in the years and decades ahead, particularly when it comes to capital-intensive projects."

“We have seen many of our SWF clients around the world, including within the Middle East, expand their investment programs in recent years,” says Isabel Dische, partner at Ropes & Gray and chair of the firm’s alternative asset opportunities group.

According to Global SWF, sovereign funds worldwide held $11.2 trillion in assets under management (AUM) in 2023, around 13 per cent of the world GDP of $85 trillion. This percentage is set to grow as investors become increasingly active investors.

In 2023, SWFs dominated the dealmaking circles in the Middle East region, although the overall market fell amid a challenging macroeconomic environment, a new report showed.

SWFs funnelled an estimated $81.7 billion into mergers and a per cent of the total value of deals during the year, Bain & Company said in a report.

According to estimates, the region saw around $95 billion worth of M&As, registering a 3.0 per cent decline from the prior year’s $98 billion. The slowdown mirrors the trend worldwide, with global M&As dropping 15 per cent to a ten-year low of $3.3 trillion.

Dealmaking data for the Middle East suggest that government funds are pivotal in the region’s investment space.

The Middle East is undergoing a significant shift towards accelerating the energy transition, with a growing emphasis on clean energy investments and ambitious net-zero targets, according to said Elif Koc, a partner at Bain & Company Middle East.

Investment experts said sovereign wealth funds are leading the charge in reshaping the economic future of the Middle East, diversifying beyond oil and laying the groundwork for sustainable growth and prosperity.

According to them, Middle Eastern countries have become key players in the global economy. Their surplus funds are diversifying the economies of resource-rich countries and contributing to future investments across the globe. In the long term, this will help the region become less reliant on oil, and the returns from these investments will serve as an alternative source of income for the regional economies. The region’s SWFs are highly likely to gain a strong presence worldwide in sustainable investment in addition to the healthcare, infrastructure, and revolutionary technologies space, experts said.