Private equity bosses in the Middle East say the worst of the financial crisis has passed, but improved capital and equity markets won't immediately translate to large or numerous deals. Executives at one of the industry's largest conferences, Super Return Middle East, were cautiously optimistic about the region's health and ability to rebound. “There's general consensus that even if we're not out of the crisis, the worst is behind us in terms of a freefall,” said Mustafa Abdel-Wadood, managing director of Abraaj Capital, the Middle East's biggest private equity firm. “At least we've hit somewhat of a bottom.” Several private equity firms said they were pursuing deals. Abraaj Capital sees investment opportunities in Saudi Arabia, Egypt and Turkey, while United Arab Emirates-based Gulf Capital said it is looking to invest $500 million in Saudi Arabia, the UAE and Egypt. Gulf private equity firms are sitting on as much as $13 billion in funds still to be invested, according to industry estimates. “The situation has been getting better. You can feel it and hear it, particularly talking to people in the region,” said Makram Azar, head of MENA investment for New York-based Kohlberg Kravis Roberts & Co. “People are feeling more positive ... they have more money in their pockets.” Still, deals will be smaller and less dependent on debt, and targets will take longer to turn around, executives said. KKR, which is establishing its presence in the Gulf, said it is focused on striking partnerships and teaming up with local players, rather than large leveraged buyouts. The easy-leverage years of the last private equity boom, in 2005-2007, meant people were accustomed to easy money, said Ahmed Heikal, chairman and founder of Cairo-based Citadel Capital. “Now, people will have to generate operational value ... That is going to take time. It is not going to happen in a couple of years, and exits will have to be stretched,” said Heikal. “It also demands a more entrepreneurial spirit.” Private equity buyers will have to rely on their expertise in turning around companies and building profits rather than financial engineering, executives said. “It's going to be hard to make money in the next couple of years,” said Paul Queally, co-president of US buyout firm Welsh, Carson, Anderson & Stowe. “It's going to be hard to grow returns.” Dubai, billed as the trade and tourism hub of the region, has been hit especially hard by the financial crisis. Property prices have fallen and a number of construction projects have been delayed. The Super Return conference, which draws a large crowd of international investors and private equity executives, has seen a 30 percent decline in attendance from 2008, according to organizers. About 500 people attended this year. Still, executives are optimistic about the emirate's ability to keep attracting capital. “I am confident that in three years from now, hopefully sooner, Dubai will be back on top,” said Ammar AlKhudairy, CEO of private equity firm Amwal AlKhaleej. “It has certain features that are unique. I strongly believe it will come back with a vengeance.” A top executive of the Carlyle Group said on Tuesday that private equity activity in the wider Middle East region in the near future will be especially strong in Saudi Arabia and Turkey. “The Gulf is not only a source of capital, I think it will be a source of dealflow,” said David Rubenstein, co-founder and managing director at Carlyle, one of the world's biggest private equity players. “I suspect in Saudi Arabia more deals will be done.” Rubenstein was speaking at the Super Return conference, the annual gathering of the private equity industry in Dubai. Rubenstein's comments reflect the general mood among private equity specialists about growth opportunities in Saudi Arabia, the Arab world's largest economy. Saudi Arabia is attractive to investors because of its fast-growing population, the potential of thousands of family-owned businesses and the government's large-scale investment plans in transport and infrastructure. Rubenstein also singled out Iraq, which in coming years could become a more important investment target. “As the economy recovers from the war you'll see more capital flowing in,” he said. Capital to invest in the Middle East will mostly come from local investors, followed by Europe and Asia, Rubenstein said, adding that American capital is unlikely to find its way here. Rubenstein expects sovereign wealth funds to play a more regional role. “There will be more political pressure on sovereign wealth funds to invest in the region,” he said.
