Education, healthcare, oil and gas services and basic consumer necessities are also amongst the top most sought-after industries in Private Equity (PE) in the GCC.
“The Private Equity market in the Middle East makes up only a small part of the overall merger and acquisition (M&A) marketplace. However, it is in a very healthy state with deal volumes and values significantly increasing in 2012, as compared to previous years,” Richard Clarke, managing director, Transaction and Restructuring Services, Deloitte Middle East, said.
“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,” he added.
Many Private Equity firms in region are still in the fund deployment mode, and have not yet entered the harvest phase of their fund cycles. Deloitte experts believe that early fund investments in the Middle East are entering the market either by way of secondaries, IPO’s or trade sales. In addition, findings point to the successful practices of strong PE firms in the region, that have spent the past few years preparing their portfolio companies for sale.
Deloitte experts further indicate that Middle Eastern financial institutions are tightening their lending criteria often to the disadvantage of the growing small and medium sized companies. As such Private Equity firms are and will play an increasingly important role in the development of this SME sector helping to bridge the gap between founder equity and short term borrowings.
“This capital structure gap is ideal for growth capital focused PE funds. It also allows founders to grow their businesses in a controlled way while still retaining equity upside, a flexible structure which the banking community and a large corporate partner may not be able to accommodate,” Clarke, said.
In terms of challenges that the Private Equity market faces in the Middle East, Deloitte experts point to sourcing quality deals, valuation gaps between vendor and acquirer, PE differentiation and aligning with Limited Partner’s expectations.
Deloitte experts point to compliance with Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, to be the forefront of PE Executives’ concerns. Both these acts have significant repercussions around the globe, with many corporate clients ensuring their suppliers are in accordance with these acts.