CAIRO: Private equity in the Middle East and North Africa witnessed a decline in 2009, with fund managers raising only $1.06 billion, according to a recent report, but numbers are expected to rebound in 2010.
Private equity firms in MENA raised $1.25 billion in the first quarter of 2010, an 18 percent increase over all of 2009, as regional economies recovered and investor appetite returned, the report finds.
Though the recent figures are encouraging, they are still far below a near-record $5.4 billion in 2008, according to the fourth annual “Private Equity and Venture Capital in the Middle East” report released by the Gulf Venture Capital Association (GVCA) in collaboration with KPMG and Zawya.
According to a study by INSEAD and Booz & Company, there are around 150 funds in the region today with a further 10 announced and an additional four in various stages of planning.
Private equity investments slid from $2.72 billion in 2008 to $561 million in 2009, according to the GVCA report.
“Private equity investments globally as well as regionally were affected by the cautious investment environment as a result of the continued recession in 2009,” the report says.
Moreover, an estimated $10 billion committed to private equity funds remains not invested.
“Private equity has regained its positive momentum despite the results of 2009. The outlook for private equity in 2010 and beyond remains positive as the economic fundamentals of the region have not changed,” said Imad Ghandour, chairman of GVCA’s Information Committee, in a statement.
“The story in the region continues to remain one of growth and economic stability, and private equity funds will have ample opportunities to invest profitably in the coming few years,” she added.
To cope with the slowdown, fund managers changed their investment strategies, focusing on more stable sectors such as healthcare, education, transport and utilities.
“It is encouraging to see that private equity investors are getting back to basics by channeling much needed funds into parts of the economy that received little attention during the boom years,” said Ihsan Jawad, CEO, Zawya/
Venture capital has also been receiving attention, with seven transactions estimated at $25 million closed in 2009.
“From virtually no deals throughout 2009 and into the first quarter of 2010, the upturn has been surprisingly fast-paced. …it seems that the opportunities are out there to feed the increased acquisition appetite for the time being,” Vikas Papriwal, KPMG’s UAE country head of private equity and sovereign wealth funds, said.
GVCA conducted an online survey in May 2010 with 25 regional private equity professionals, 72 percent of which expected the situation to improve, showing a significant increase compared to 50 percent who felt optimistic in 2008.
Nasser H. Saidi, executive director of the Hawkamah-Institute for Corporate Governance, said, “In most cases, PE funds have limited ability to sell their ownership stakes, and are therefore committed to staying with the company for the medium term. This increases their dependence on good governance, transparency and disclosure in investee companies. …[Therefore] corporate governance plays a crucial role in the private equity industry.”
