Dyna.Ai sets its focus on Saudi Arabia’s fintech sector

RIYADH: Saudi Arabia led the Middle East in mergers and acquisitions in the chemical sector in the first quarter of 2024 with transactions worth $500 million, according to the latest figures.

Figures from financial markets platform Dealogic showed the total volume of M&A transactions in the kingdom during the period reached US$955 million, with the chemicals sector accounting for 52.4 percent of the total.

Saudi Arabia was the only country in the region to show activity in the sector, and a report from consultancy Kearney earlier this month indicated that chemical executives expected more mergers and acquisitions led by strategic investors such as national oil companies.

“Recent deals by major players such as Aramco and ADNOC underline the region’s determination to use M&A as a key growth driver and set the stage for a dynamic and transformative period,” Jose Alberich, Kearney’s Middle East and Africa partner, said at the time. .

Data from Dealogic revealed that the professional services sector was the second targeted sector with deals worth $160 million, representing 16.8 percent of the Kingdom’s total.

Technology was close behind with a transaction value of $138 million and a 14.5 percent share.

Retail trade and insurance accounted for 7 percent and 4.1 percent of the total.

Throughout the region

Data revealed that M&A volume in the Middle East reached $6.21 billion in the first three months of the year, with technology the leading sector with 42 total deals worth $1.56 billion.

Financials followed with 9 deals worth $1.3 billion, while the oil and gas sector, which topped the list a year ago with $3.5 billion worth of deals, slipped to eighth place with just $273 million.

According to Dealogic, domestic deals were the dominant contributor, accounting for 55 percent of M&A volume in the Middle East across 91 deals. In contrast, outbound transactions accounted for 45 percent with a total of 38 trades.

Kuwait emerged as the largest contributor to the GCC’s total M&A deal volume, reaching US$1.12 billion, all of which were outbound.

The United Arab Emirates followed closely behind with a trade value of $988 million, of which 58 percent was domestic.

Saudi Arabia consolidated its third position with 18 transactions worth $955 million, of which 60 percent were outbound.

Compared to the same quarter in 2023, business volume in the Middle East decreased by 27 percent.

Global slowdown

In its report, Dealogic explained that global M&A activity saw a significant decline during the period, with the number of deals falling 31 percent to 7,162, marking one of the quietest quarters for sellers in nearly two decades.

The slowdown was largely attributed to high capital costs, with Switzerland the only major economy to cut interest rates in 2024.

In addition, geopolitical tensions, including the emergence of the Middle East as a new flashpoint alongside ongoing conflicts between Russia and Ukraine, and tensions between Washington and Beijing over Taiwan further contributed to muted deal-making activity.

Drivers of activity

In a paper published in September, Boston Consulting Group said government support has been a driver of significant M&A activity among emerging market players in recent years, particularly in the Middle East, as firms look to expand their global presence.

Saudi Arabia’s SABIC acquired a 31.5 percent stake in Clariant, approaching the 33.3 percent threshold for a mandatory takeover bid under Swiss law.

UAE state-owned ADNOC has bought a 24 percent stake in OMV, increasing its indirect holdings in Borealis and Borouge and is in talks to merge them.

ADNOC also made an $11 billion bid for Covestro, which was rejected, and expressed interest in Brazil’s Braskem. These moves point to a trend of using government support to improve regional footprint and integrate into global value chains

In addition, Saudi Aramco acquired Valvoline Inc.’s global product business in 2023. for 2.7 billion USD. According to BCG, the acquisition enhances Aramco’s lubricants portfolio by integrating Valvoline’s manufacturing and distribution network and its research and development capabilities.

The research pointed to three other key reasons driving changes in the macro trends of mergers and acquisitions, portfolio diversification, vertical integration and technology acquisition.

Companies are increasingly expanding their portfolios through acquisitions to enter new markets and product segments, often for longer periods. In addition, the focus has shifted from acquisitions focused on traditional feedstocks to sustainable diversification of petrochemical value chains, favoring higher margin and less cyclical businesses.

Essentially, this means that instead of primarily acquiring companies to secure feedstocks, the emphasis is now on achieving sustainable and balanced growth across the entire petrochemical value chain. The current priority is to invest in businesses that generate higher profits and are less affected by market fluctuations. The goal of this shift is to create a more resilient and profitable business model in the long term.

This strategic emphasis on specialties encourages vertical integration into downstream segments, as evidenced by major acquisitions of industry leaders such as Saudi Aramco, SABIC, Thailand’s PTT and Malaysia’s PETRONAS.

According to the BCG paper, gaining or maintaining technology leadership is a key driver of mergers and acquisitions. Acquisitions and joint ventures are critical to positioning the companies as major suppliers in the e-mobility segment and the related electronic chemicals and batteries industry.

As the demand for sustainable solutions grows, companies increasingly recognize the potential of e-mobility. Through strategic mergers and acquisitions, including technology acquisitions and investments in research and development, they seek to ensure competitive advantages in this rapidly developing market.

According to Dealogic, technology-focused deals accounted for 21 percent of global M&A activity in the first three months of 2024. Healthcare followed with 14 percent and financials with 11 percent.

Oil and gas accounted for 9 percent, utilities and energy 7 percent, and real estate and real estate sectors accounted for 5 percent of total M&A activity.

AI attracts funding

The Dealogic report highlighted that the biggest global technology deals were powered by artificial intelligence. The surge in AI has significantly boosted Nvidia’s market capitalization to $2.4 trillion, with the company investing in seven AI-related firms during that period.

Saudi Arabia also plans to establish a $40 billion fund dedicated to investing in artificial intelligence, according to a New York Times report in March.

According to the report, it is due to launch in the second half of 2024 and, led by Saudi Arabia’s public investment fund, is aiming to attract partnerships with US venture capital firm Andreessen Horowitz and other financiers.

It will focus on supporting various AI-related businesses in Saudi Arabia, including chip makers and large-scale data centers, the NYT reported at the time.

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