Private Equity In The GCC: Who Will Survive?

GROWTH IN SIGHT

Although the Middle East’s PE industry only makes up only a small part of the overall mergers and acquisitions (M&A) marketplace currently, deal volumes and values are growing, Deloitte added.

Gulf Capital’s Solh concurs: “Post financial crisis and Arab spring, the PE activity is starting to pick-up and more deals are being expected both in terms of volume and values when compared to the previous three years.

“Growth capital is one trend emerging, as opposed to buyout pre-financial crisis. The SME sector is considered as a key opportunity for PE players, especially since that sector makes up for an important share of the local economies and employment. You would see an increase in the number of deals in the lower deal size bracket.”

Labib too expresses a parallel sentiment. “From a volumes perspective, we view the smaller under $50 million transaction space as the main driver over the next few years.

“The larger, over $50 million will be more limited in the short term, however, in the long run we believe there will be a lot of potential for larger ticket sizes especially as companies have greater cross border ambitions.”

CONSOLIDATION ON THE CARDS

Going forward, experts believe the sector is set for consolidation, with the best players outliving the others.

“Amidst an ongoing challenging fund raising and investment climate, only a limited number of PE players are able to deploy and raise more funds in the GCC region,” says Solh.

“As such, we expect a consolidation in the PE market where only the strongest players with a proven track record will survive in the medium to long-term.”

“The financial crisis has impacted the number of active PE funds in the region, resulting in a reduction in total active firms. Yet, the positive side for PE firms is that there is reduced competition for assets,” according to Richard Clarke, managing director, Transaction & Restructuring Services, Deloitte Middle East.

Quilvest’s Abouchalche also finds positives in consolidation: “It’s not bad, that’s the natural evolution of the industry. You have the performing teams that are going to survive. And the few that disappoint will dissolve.

“You have good professionals in the weak-performing funds who will be channeled to the better teams. It’s normal – we have seen it in every maturing market, in the 70s in the US, in the 80s in Europe and Asia and maybe in next 10 years in Africa.

“You need to give time for the Middle East to develop [its PE sector]. If I had to take a guess, in five to 10 years, the market will be mature,” the CEO added.