David E Simpson is an author of this artilce, working as Director Investment at Starling Group http://www.starlinggroup.com
Private equity as a source of capital for evolving companies has seen tremendous growth in the MENA region during the last few years. MENA focused mergers and acquisitions activity has grown from less than $4 billion in transactions in 2002 to over $30 billion in 2007. Yet 2009 has brought a lot of angst for investors across all assets classes and private equity is no exception. Ironically, local industry participants do not seem overly concerned about the subdued market condition in 2009. The mood has certainly changed globally compared to 2007 when assets were quickly changing hands. Comparing Middle East Private Equity markets with the rest of the world, we find MENA region has produced high rates of return; these will undoubtedly be under pressure in the current atmosphere.
Those private equity investment firms whose focus is on improving the performance of their portfolio companies can still achieve their targeted returns and fundraising targets despite the ongoing financial slow down. Key themes for the Middle East private equity sector in 2009;
1) Fund raising difficult for smaller players
2) Defensive sectors like healthcare, education, infrastructure and food & agriculture
will prevail as a main focus for investors
3) Minority growth capital investments not needing leverage will outnumber control buyouts
4) Focus on regional funds rather than on country specific funds to diversify risk backed
by local investors more than global institutions
Investors will gravitate to visionary and prudent managers with a solid awareness of the risks accompanying an economic downturn. It is not an accommodating environment for first time funds, managers or strategies – investors are backing experienced ‘grey-haired’ managers pursuing a disciplined strategy with decades of proven performance.
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