Middle East private equity investments and exits remain positive

By Isla MacFarlane

11 June 2012

The MENA Private Equity Association, in partnership with KPMG and Zawya, released the 2011 Private Equity and Venture Capital in the Middle East Annual Report, which indicates that the outlook for 2012 is positive given the momentum in 2011

The report shows: the total number of private equity investments increased from 70 in 2010 to 73 in 2011; exits have been on an upward trend during the past three years, reaching 30 in 2011, compared to 23 in 2010 and 7 in 2009; technology, Media & Telecoms (TMT) formed 28 per cent of the investment volumes in 2011; the number of funds raised in 2011 is on par with 2010 but the size of funds has seen a decrease
Dr. Nasser Saidi, Chief Economist, Dubai International Financial Centre, said, "There are promising signs of recovery in private equity investment space in the MENA region despite the recent turmoil; investors are looking at Egypt, Tunisia, KSA and the UAE as attractive hubs for investments. While the current status in the region has led to a cautious investment trend, there is a high focus on investing in non-cyclical sectors such as infrastructure and transportation, healthcare, energy, food and agriculture. Global infrastructure investment is expected to reach $ 40 trillion by 2035, primarily in emerging market economies. In MENA infrastructure investment requirements exceed $2 trillion over the coming decade presenting great opportunities, with a growing number of MENA-focused infrastructure funds which have been raised or are being raised to take advantage of these opportunities. However, governments need to create more opportunities for the private sector through privatisation schemes and PPP. This will require enabling PPP legislation and regulations."

Imad Ghandour, Managing Director at CedarBridge Partners and a member of the Association Steering Committee, commented: "Despite the political unrest in the region, fund managers have identified many sustainable pockets of growth that offer substantial returns to investors during 2011. Managers are seeing opportunities in sectors like healthcare and education, and TMT. There is potential growth also seen in the SME space."
Ali Arab, Zawya, added, "2011 was an encouraging year for MENA private equity, with the industry showing signs of recovery. The positive outlook has continued in 2012, whereby growth capital and buyout funds closed more than 20 deals during the first quarter of this year."
PE firms are taking advantage of the shortage of capital, resulting from the global crisis, to buy well-priced assets. Political risk and slow economic growth have allowed fund managers to invest in quality companies at low valuations, with focus on the technology and export sectors.
Longer holding horizons and more focus on strategic value adding to portfolio companies have characterised PE activity from entry till exiting investments. "After four to five years of acquiring and developing portfolio entities, a number of private equity funds in the region are nearing the end of their lifecycle. Although valuation data is not always publicized, we have seen positive stories among the exits in 2011, and we believe we will see more of the same going forward," said Dale Gregory, Partner, KPMG.
Deal activity throughout the region has been reinvigorated as funds look to deploy capital raised, said the report.

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