Apr 23 2012
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Trends in the MENA PE Industry
The MENA PE industry dynamics has been adversely impacted by the global economic crises, consequently, PE firms in the MENA region have been adapting themselves in a more volatile and demanding market, by adopting a risk calculated approach on their investments.
Furthermore, the political uprisings in some parts of the region have also affected the fund raising activity for PE firms whereby investor appetite has diminished. As a result, a number of regional private equity funds capped their funds to reduce capital pressure on Limited Partners (LPs) whilst protecting existing investments in the Fund. LPs on the other hand are calling for more scrutiny on investments made by the General Partners and a more comprehensive due diligence approach. As less capital is available for capital commitments and distributions are not materializing for PE firms, LPs are being more rigorous with Funds Mangers in terms of increasing their reporting and transparency.
In terms of investing activity, many transactions have been put on hold until further clarity materializes. In addition, exit plans for many of the PE Firm's investments have been compromised due to unfavorable valuations for both buyers and sellers and the lack of liquidity in the market.
As some PE funds reach their maturity, PE firms in the region are focusing on managing their current portfolio of assets by restructuring their investments and delivering additional value. The value created, will be a key competitive advantage amongst PE firms in preparation of anticipated exists through trade sales rather than a current dried up IPO market which was a classic vehicle for PE firms.
In terms of sectors, PE firms are focusing on mainly three major sectors which are oil and gas, education and healthcare. PE funds will be investing in companies that focus in drilling services and pipeline and processing services since it's a defensive sub-sector of oil and gas that has no substitute and therefore its market size is not shrinkable. In addition to the fact that the sector is heavily dependent on the oil and gas industry, which is the backbone of the global economy, market studies indicate that the oil and gas drilling industry is projected to be valued at USD125 billion by 2015, an increase of around 50% since 2011.
Education has proven a good investment over the years for some PE firms as it is considered one of the key sectors in the region. The education sector in the UAE in particular, accounts for approximately 24% of the total government expenditure, and has an estimated market size of approximately USD 7 billion. The region is witnessing an increase in demand for private schools, which can impart education as per the international standards. Also, many foreign higher education institutions are building their presence in the region, which provide globally accepted programs and courses.
The growing population in MENA region, complemented with rising income and literacy levels, these factors will fuel the demand for better healthcare services. Since Governments are enforcing mandatory health insurance laws, a better healthcare infrastructure will be set in place. Accordingly, PE firms will take advantage in financing these infrastructure requirements.
In conclusion, the future of the PE industry in the MENA region is highly dependent on the exits carried out by the PE funds, in addition to identifying the right deals for LP's in the emerging sectors. Generating returns to LP's will help PE firms build their own track record and reinforce confidence amongst investors.
Mr. Firas Hurieh is a Private Equity Manager at Al Mal Capital PSC where he is responsible for every aspect of the private equity funds from origination and sourcing of investment targets, structuring and negotiation of investments deals, deal placements and portfolio monitoring for all industry sectors primarily in the MENA region and Internationally.
Prior to Al Mal Capital Mr. Hurieh was an executive at Ernst & Yong in the Transaction Advisory Services, where he was responsible for the corporate finance team in analyzing financial and operational information to provide insights to key decision-makers on conducting transactions in the region.
His sector experience includes manufacturing, real estate, oil & gas and telecommunication.
© Zawya 2012
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