Surge in MENA venture capital fundraising
18 July 2011
A new report from the MENA Private Equity Association tries to put a brave face on the economic and political turmoil that has swept the Middle East and North Africa (MENA) region in the past three years.
The report's Steering Committee, which includes the likes of Imad Ghandour of Cedar Bridge Partners, Purshotam Ramchandani of Abraaj Capital and Karim Ben Salah of Swicorp admit that, "The private equity industry may be pausing to reflect on these changes of 2011. However, it is a pause to see how to clutch on the emerging opportunities whilst avoiding short-term risks," it says optimistically.
Dale Gregory, a Partner at KPMG added, "While the industry in 2010 may not have recovered at the rate that was expected, there were signs that the industry within the MENA region may be on the road to recovery. For example, 2010 saw an increase in funds raised from $1.1 billion in 2009 to $1.3 billion indicating that investors continue to see considerable value in the region. Whilst we recognise the risks posed by the current unrest in some parts of the region, we as a firm remain positive about the longer-term prospects of the industry in MENA."
The report shows that fundraising and investing activity in 2010 are still well below their pre-crisis highs and while funds raised in 2010 showed a slight improvement on 2009 levels, that transaction activity was still very much muted and was lower than in 2009. Sellers' expectations still do not seem to be correlated to reality. Eight funds raised $1.3 billion, up fractionally on the $1.1 billion which was raised in 2009.
"Most funds seeking to invest attributed the reduced investment activity to a mismatch between sellers' and investors' price expectations: sellers' expectations are uplifted by the buoyant economic activity in many regional economies; whilst buyers, learning from the lessons of the recent crisis, insist that prices should be discounted to reflect the inherent risks," the report said.
However, venture capital fundraising, which had virtually vanished, seems to be showing signs of life, with four funds raising $340 million, up from absolutely nothing in 2009, a sign perhaps that government and private sector efforts to boost VC activities in the SME sector are bearing fruit.
"For the first time, the proportion to the total was significant: it represented 26 percent of the total funds raised and approximately 50 percent of investments completed," the report said, adding that most of the activity was taking place Saudi Arabia, Turkey, Egypt, and the UAE.