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Deloitte MENA survey: Private equity on the verge of a new investment cycle regionally


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  • 65% of respondents expect an increase in investment activity
  • 69% of respondents plan to raise a new fund within the next 12 months

8 October, 2013 - The results of Deloitte’s sixth MENA Private Equity Confidence Survey, which serves to provide a barometer of market perception and confidence amongst private equity professionals investing within the MENA region, confirm a continued optimism for growth in the regional investment activity, but a shift in immediate focus for many General Partners (GPs) towards asset monetization, from vintage funds and capital raising, for a new round of acquisitions.

The survey confirms that market confidence remains high with over 65% of respondents expecting an increase in investment activity over the next year, primarily driven by convergence of the buyer-seller valuation gap and higher levels of free cash in both corporates and family offices.

For many GPs, the continued appetite for new investment will be balanced with a more immediate focus on securing future capital. With regional funds raised during the pre-crisis era running low on cash reserves, over two thirds of respondents will be looking to raise a new fund within the next 12 months. The success of these fundraisings is likely to be highly correlated to historical performance.

“We are now at a point where Limited Partners (LPs) are increasingly keen to see realized value on previous investments.” said Declan Hayes, Managing Director, Deloitte Corporate Finance Ltd in the MENA region. “GPs still hold a backlog of portfolio companies, many of which have required extended holding periods - adequate preparation to achieve value maximization on exit will be crucial to demonstrate a positive track record and persuade LPs to commit to new fundraisings.”

Two thirds of respondents expect an increase in exit activity within their fund this year - 23% confirming it will be their primary focus. The most likely exit route, a trade sale to a strategic buyer, remains unchanged from prior year; however confidence in exit via IPO has increased significantly with nearly a third of respondents indicating that a regional or international listing would be their most viable exit option.

The target geographical area for regional PE houses is becoming focused on fewer countries with the majority of respondents confirming their investment activity will be centred around KSA and UAE. Despite the very favourable demographics of these locations, private equity investors note that the most significant challenge over the next 12 months will likely relate to the limitation of suitable assets available within the more concentrated target area.

From an industry perspective, there remains a general preference towards defensive investments. Around 34% of respondents indicate a preference towards retail and consumer businesses including food and beverage. There is, however, also recognition that the favourites such as education, healthcare and oilfield services are now very competitive, and diversification into less familiar sectors may be necessary to secure the required IRR.

“GPs remain optimistic towards continued long-term growth prospects in the MENA region; however, as the industry enters a new investment cycle and LPs increasingly consider direct or co-investment options as a viable alternative to blind pool investing, the focus on exits is critical,” concludes Chris Carney, Assistant Director, Deloitte Corporate Finance Ltd in the MENA region. “A more sophisticated approach, including the growing trend to use vendor due diligence, will improve individual asset returns and safeguard future funding.”

To view the survey results go to: https://www.deloitte.com/view/en_XE/xe/services/financial-advisory/private-equity/b638d1e4a4791410VgnVCM2000003356f70aRCRD.htm

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