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Abu Dhabi’s ADNOC is pursuing an EUR11.7bn ($12.74bn) takeover of German chemical maker Covestro, marking the largest European acquisition by a Middle Eastern buyer in at least 16 years and reflecting a recent increase in dealmaking between the regions.
So far this year, Middle Eastern buyers have announced or completed over $24bn in acquisitions of European assets, the highest amount for this period since 2008, and 74% above the average in the last decade according to Dealogic. This is a significant increase from $4.9bn in the same period last year.
Gulf investors are attracted to Europe due to lower company valuations compared to the US, a more favorable regulatory environment for buyers from the region, and the welcoming attitude towards investment needs, as noted by advisers and analysts interviewed by Reuters.
David Martin, corporate partner at Linklaters, emphasized the confidence of Middle East strategic investors in European investments and highlighted the need for deep-pocketed investors in large infrastructure projects in Europe.
Miguel Azevedo, Middle East and Africa vice-chairman of investment banking at Citi, praised the UAE’s strategy of creating global champions in industries where they excel, their business-driven approach, and positive political perception.
European stock market valuations have been declining relative to their history and compared to the US market, making them attractive to investors from the Gulf Cooperation Council. Diego Lopez of Global SWF mentioned the focus of these investors on infrastructure and energy assets.
In contrast to the stringent scrutiny faced by foreign investors in the US, European deals are scrutinized by individual countries, though the European Commission is aiming for more coordinated control. Lopez noted that this scrutiny is generally less intense in the EU.
Despite the favorable conditions, some deals face challenges, such as the collapsed talks between Abu Dhabi’s TAQA and Naturgy due to governance disagreements. Regulatory concerns are less of an issue in Europe, but political hurdles have hindered some tie-ups in the region, as seen in Spain and the UK.
ADNOC’s discussions with Covestro and OMV’s negotiations with the oil and gas group in Austria have been ongoing for over a year, emphasizing the complexity of deals in strategic sectors with increased antitrust and foreign investor screening.
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