Carlyle eyes second MENA fund

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The Carlyle GroupThe Carlyle Group, an international private equity firm, may launch a second dedicated Middle East fund this year.

CarlyleCarlyle

Last year, private equity funds investing in the MENA region collected US$1.1 billion (Dh4.04bn) of fresh cash, down 84 per cent from 2008, according to the Emerging Markets Private Equity Association. However, much of this money has not yet been invested. Globally, the amount of money raised by private equity funds fell 68 per cent.

"I anticipate that we will complete a couple of deals by year-end. If they are successful, then we will definitely start raising another fund. We are already thinking about it," said Walid Musallam, a managing director of CarlyleCarlyle and the head of its Middle East and North Africa fund.

"Typically, we start the process of raising funds for the next fund when 75 per cent [of the old fund] is invested."

Private equity firms invest in companies to help them grow and typically "exit" by taking them public or selling them.

CarlyleCarlyle's MENA fund has so far spent about half of the $500 million it said it had in March last year. Late last month, the fund bought a 30 per cent stake in Saudi Arabia's General Lighting, a provider of lighting fixtures.

The investment was the group's third Middle East deal in three years. In July 2008, CarlyleCarlyle bought a 50 per cent stake in the Turkish shipyard TVK, and last December it bought a 40 per cent stake in the Turkish hospital operator Medical Park.

Although the Gulf is a large source of funds for private equity investing, it remains only a small destination for those investments.

While prices for companies have come down significantly from their peaks in 2007 and 2008, "things are still not cheap", Mr Musallam said. "But we are considering many deals more seriously."

Large populations and strong local demand make Saudi Arabia, Turkey and Egypt the top choices for CarlyleCarlyle. The group mostly looks at opportunities in the retail, food, manufacturing and oil and gas sectors.

Private equity players in the region may also profit, and become more engaged, in infrastructure-related industries such as building materials.

"Within the GCC, some governments are clearly looking at expanding the role of the private sector in infrastructure," Mr Musallam said. "Some of these policies will see ... more opportunities for private equity in infrastructure."

The GCC expects to invest as much as $500bn in infrastructure projects in the next decade.

Unlike with the two deals in Turkey, CarlyleCarlyle's MENA fund financed part of the Saudi deal with debt, Mr Musallam said. The levels of debt financing in regional private equity deals are, however, typically far below below global levels. Private equity debt financing peaked globally two years ago when the cheapness of money encouraged private equity companies to put together highly leveraged deals.

The economic crisis has stalled private equity fund-raising as well as deal-making, particularly after many industry players heavily overpaid at the peak of the economic boom in 2007 and 2008. As a result, most private equity firms have stayed on the sidelines in the past two years and accumulated large amounts of "dry powder", or money that has not been invested.

CarlyleCarlyle's MENA fund scrutinised about 200 deals in 2008 but completed only one.

By Uta Harnischfeger

© The National 2010