JEDDAH — UAE and Saudi Arabia attracted over 75 percent of MENA investment activity by value, reflecting their scale and stability and increased availability of larger target assets, the MENA Private Equity Association, a non-profit organization supporting the development of the private equity and venture capital industry in the Middle East and North Africa, said in its ninth “MENA Private Equity & Venture Capital” Annual Report released over the weekend. The two countries accounted for a lower proportion of transaction volumes at 31%, the report added. Further, the report said the year 2014 was characterized by some of the largest private equity deals seen in the region. Fund managers had demonstrable success in assembling and working with consortium partners, including international private equity investors, to close major transactions. Overall, there was a sense of returning confidence and increased opportunities as the region continued to emerge from the impact of the Arab Spring. Total number of known investment volumes increased in 2014 to 72 compared to 66 in 2013. Values of disclosed investments have also seen an increase by 118 percent to $1.5 billion. Notable transactions included Fajr Capital, Mumtalakat and Blackstone joining forces to invest in GEMS Education and a consortium including Fajr Capital investing in National Petroleum Services.
Total funds raised in 2014 reached the highest level since 2008 at $1,229 million compared to $744 million in 2013. The average close size also increased to $103 million. There was a marginal increase in the number of closes in the year (three funds closed twice in the year) as fund raising in the region continues to be challenging for many market participants due to the limited number of GPs and concerns over geopolitical instability.
In 2014, the greatest investment values were in oil and gas and demographic driven sectors such as education, services and food and beverage. Retail, healthcare and consumer goods were also core focus areas for GPs as defensive and consumer driven sectors continue to dominate investment focus. The value of investments in Egypt doubled over those seen in 2013 as a growing middle class and movement towards increased political stability remain key factors in attracting private equity investment. Information technology businesses saw the largest number of transactions as venture capital investors continued to target the sector. The manufacturing sector has become more attractive post the downturn and investments in that sector increased significantly over 2013.
Disclosed divestment volumes increased in 2014 to 20 compared to 16 in 2014. The venture capital industry in 2014 remained broadly consistent with 2013. Investment activity in 2014 was led by Lebanon. The country is characterized by small- and medium-size companies. Support from the Lebanese Central Bank has further stimulated interest in investing in start-up companies and SMEs. Jordan, the UAE and Morocco were also notably active in 2014. Imad Ghandour, Managing Director at CedarBridge Partners and a member of the Association's Steering Committee, said: “Private Equity has permanently established itself over the past decade as a mainstay in the regional financial market as it successfully overcame several economic and political crises. It has now several well-established players focused on funding and nurturing tens of young companies of all sizes and in all sectors. Its impact on the development of the regional private sector is increasingly being felt as such company blossom into strong regional and global operators, each in their respective field. This year report reconfirms again the Association's strong belief of the increasing role in the regional economies.” The long-term outlook for the region remain strong with the demographic profile, relative economic stability, increasingly developed entrepreneurial outlook and underlying liquidity all supporting the view that the private equity and venture capital industries are poised to continue developing positively across the region. According to Declan Hayes, Managing Director at Deloitte Corporate Finance Limited, “the survey is evidence of a significant development in the industry over the last year with the successful conclusion of a number of large and complex transactions. Our confidence survey demonstrates that while the industry inevitably faces challenges the outlook is certainly positive.” — SG
