| 19 Jul 2010 |
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INSEAD and Booz study finds Private Equity in the Middle East is emerging stronger and smarter from the financial crisis.
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With about $11bn in unspent funds and confidence in the market, the industry is set to become a rising contender in emerging markets
INSEAD and Booz & Company surveyed private equity firms or general partners (GPs), and their investors or limited partners (LPs) in the Middle East to create the report. Respondents were surveyed for their views on the business, current market sentiment, confidence and expectations.
'INSEAD is truly driving the research agenda in this important growth area for the Middle East,' said INSEAD Dean J. Frank Brown, who oversaw the opening of the school's campus in Abu Dhabi earlier this year. 'As private equity develops as a sector it will be a key feature in the landscape of economic recovery. It will continue to be a critical focus for our faculty research and programmes.'
The private equity industry in the Middle East has grown remarkably quickly for an industry that barely existed a decade ago. Today, there are some 150 funds in the region with a further 10 announced and an additional four in various stages of planning. However, PE as an asset class in the Middle East is relatively new and, on a global scale, still very small.
Beyond the occasional mention in larger global PE surveys or specific case studies, little research or literature exists on PE in the region. Criticisms frequently raised include limited information, lack of transparency and the general opacity of the industry.
As in the rest of the world, much of the regional PE activity is driven by closed networks, resulting in restricted information flow, yet in this region this is particularly acute given the predominance of family businesses, and traditional ways, this has the effect of making available data in PE in the region a scarce commodity. The lack of reliable information has been a source of frustration for analysts.
'The results of our survey have provided unique insights into the private equity market in this region on which little formal research has previously been done,' said Dr. Deborah Schlichting, Research Fellow at INSEAD. 'The findings will open up future avenues for inquiry in what we hope will become a focal study point for the benefit of the region.'
The survey revealed a positive response as the industry leveraged off the global financial crisis. GPs are reacting swiftly and are transitioning to stronger business models. Respondents cited several key takeaways from the downturn, including stricter and more disciplined acquisition and due diligence processes, tighter contracts and stricter enforcement, and stronger control, management and governance. The findings suggest that the region's GPs generally expect growth to be moderate but imminent in the near to medium term.
The report takes a close look at the role of family-run enterprises in the Middle East and the associated investment challenges for the private equity industry. INSEAD and Booz & Company's research shows that while the recent crisis may have affected the investment capital of family businesses, they are still important investors. Moreover, as they re-evaluate their existing portfolios and divest non-strategic companies, family businesses may present new opportunities for local well-connected private equity firms.
"Private equity in the Middle East has evolved to play a critical role in the region by injecting cash, human and logistic resources, and managerial and technical assets into local businesses. Private Equity is also closely tied with the transition of family businesses to corporate structures and the development of regional regulation", added Laura Morales, INSEAD's Global Private Equity Initiative Director.
Regional macroeconomic indicators in early 2010 suggest that a recovery has begun.GDP is expected to grow 3.5 percent in 2010 as the region's economy emerges from the downturn. By historical standards, oil prices are still high enough to bring liquidity and wealth to the region. Furthermore, there is an estimated $11bn of investable funds mostly raised before 2008 which are expected to be deployed over the coming months. Yet, the true value of these funds will likely be lower, as some GPS indicated in the 2010 INSEAD Booz & Company survey that
Some GP's may have struggled enforcing LP commitments.
In spite of such optimism, survey respondents noted that in order for private equity firms in the Middle East to succeed several fundamental strategies are important. These include specialisation, investment rigor and discipline (including majority control), value creation focus, active risk management, strict corporate governance, and the development of top leadership and management.
"In in order to take advantage of ME opportunities in 2010 and beyond, PE firms must act as active owners. They have to provide more support to their portfolio companies, helping with strategic and market positioning, financial discipline, and filling the management gap" concluded Ahmed Youssef, Booz & Company.
INSEAD launched its Global Private Equity Initiative (GPEI) in 2009 to combine the energies and talents of the school's research and educational capabilities with INSEAD alumni and global professionals in the private equity industry. INSEAD's GPEI is focused on delivering original research and insight for the GPs and LPs that channel growth capital to privately-held enterprises.
With INSEAD's global presence through its three campuses in Asia, Europe and the Middle East, the GPEI is uniquely positioned to provide targeted studies and perspectives to assist the private equity community with investing in different regions.
The full report can be accessed at www.insead.edu/gpei/me-report.
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About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world's top businesses, government ministries, and organizations.
Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.
Today, with more than 3,300 people in 61 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.
For our management magazine strategy+business visit www.strategy-business.com.
For the Ideation Center, Booz & Company's leading think tank in the Middle East, visit www.ideationcenter.com
Visit www.booz.com and www.booz.com/me to learn more about Booz & Company.
About INSEAD, The Business School for the World
As one of the world's leading and largest graduate business schools, INSEAD brings together people, cultures and ideas from around the world to change lives and transform organizations. This worldly perspective and cultural diversity are reflected in all aspects of INSEAD's research and teaching.
With three campuses in Europe (France), Asia (Singapore) and the Middle East (Abu Dhabi), INSEAD extends the reach of its business education and research across three continents. 145 renowned faculty members from 36 countries inspire more than 1,000 degree participants in the MBA, Executive MBA and PhD programs. In addition, more than 9,500 executives participate in INSEAD's executive education programs. With the INSEAD-Wharton Alliance, MBA and co-branded executive education programs are delivered on Wharton's U.S. campuses in Philadelphia and San Francisco, as well as INSEAD's campuses in Asia and Europe.
This academic year is an important milestone for INSEAD as it celebrates half a century of success. Fifty years ago, INSEAD pioneered the concept of international business education - and is still innovating across all of the programs, in addition to the cutting-edge research. The world and INSEAD have developed dramatically in the course of the last fifty years, but the core values on which INSEAD were founded have remained constant. These principles have enabled INSEAD's entrepreneurial spirit to evolve and the school has grown into a truly global force.
Today's organizations need leaders with the knowledge and sensitivity to operate anywhere in the world. This is why business turns to INSEAD - to develop the next generation of transcultural leaders.
More information about INSEAD can be found at www.insead.edu
© Press Release 2010
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Community Comments (1)
I'm happy to see INSEAD and Booz issue this report on private equity in the Gulf region. But I for one won't read it. We all become tired of the breathless reports of the surging new growth in PE. In fact investors got wiped out on their PE investments over the last few years. They won't be coming back to the market any time soon. At the same time this report's release was announced the CEO of Al Mal Capital gave it to us straight: investors want short-term liquidity, there is no money for PE, and people got burned badly from the last round of hugely overpriced deals. What he didn't say is that investors still haven't shown their full anger at how PE stars took gigantic bonuses on overvalued deals, e.g., GFH-style deals, only to see their investments disappear down a black hole. The full extent of the losses in the region's PE industry has yet to be fully disclosed. And, 150 PE houses for a region of 26 million souls? If that's not overcrowding then I don't know what is. No, the future of PE in the GCC looks bleak, not bright. It's wrong to pant about the greatness of a PE industry that doesn't have many places to go. The emperor has no clothes.
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