While governments across the Middle East are promoting green technologies and good practices to transition to sustainable economies, new research found that the region’s mergers and acquisitions activities (M&A) have returned to pre-pandemic levels.
With 283 deals worth $23.8 billion in the first three quarters of 2022, the Middle East’s M&A activity has returned to pre-pandemic levels, a BCG report revealed.
Environmental considerations have partially fueled these results, as green M&A deals across the region increased from 5 percent in 2020 to 10.3 percent in 2021.
The energy and utilities industries have had the highest share of green M&A activity over the past 10 years, contributing to 10% of M&A deals in the Middle East in 2021.
Most prominent deals in 2022
Green deals are becoming popular in the region. Soaring sustainability transactions in the Middle East are a clear result of established national transformation programs that seek diverse economic outputs for countries on the path to net zero emissions.
“Green” M&A deals will be acquired key to the required acceleration towards enhancing environmental capabilities and offerings. Several deals occurred in 2022, the most notable in the GCC region being:
- Abu Dhabi National Oil Company (Adnoc) and Abu Dhabi National Energy Company (TAQA) acquired stakes in Abu Dhabi Future Energy Company (Masdar) from Mubadala Investment Company (Mubadala). TAQA has acquired a 43 percent controlling stake in Masdar’s renewables business, with Mubadala retaining a 33 percent interest and Adnoc owning the remaining 24 percent.
- Abu Dhabi conglomerate International Holding Co (IHC) acquired a 50 percent stake in Turkish Kalyon Energy for $490 million through its subsidiary International Energy Holding (IEH).
- QatarEnergy has signed a share sale and purchase agreement with Qatar Electricity and Water Company (QEWC) to acquire QEWC’s 49 percent interest in Siraj Energy.
Do Green Deals Create Value?
A BCG survey predicts that environmental concerns will drive increasing mergers as “green” M&A agreements grow. It shows that more dealmakers are becoming aware of the potential for these agreements to create value.
The analysis also disclosed that despite the substantial premium they often command, green deals globally generally create more value than nongreen deals upon announcement and over the ensuing two years.
By analyzing cumulative abnormal return (CAR) for three-day periods before and after a deal announcement, BCG found that the median CAR of environmental-related transactions (1.0%) is significantly marginally higher than that of nongreen deals (0.0%).
The report also determined that the median two-year relative total shareholder return (rTSR) of non-green deals (-0.55%) exceeds that of green deals (-2.38%).
“Though the Middle East is seeking out net zero solutions to power its economy, it is not letting go of the stream of energy and power,” said Ronald Maalouf, Managing Director, and Partner, BCG. “On the contrary, increasing ventures in hydrogen will surely position the region not only as a reliable sustainable center of energy supply but as a leader in that segment capable of powering an even greater number of mergers and acquisitions across the board. “With COP28 scheduled in the United Arab Emirates, we expect more attention to be drawn to the region’s green portfolio to spearhead global sustainable development goals to success,” he added.