Growth in the Gulf

Private equity firms in the Middle Eastern Gulf region have been enjoying the boom of the industry worldwide and results in the region continue to be positive. A report by the industry body Gulf Venture Capital Association in partnership with big four accountant KPMG, has revealed $9.8 billion (€7.2 billion) was raised in 2006 by private equity funds up from $5.7 billion in 2005.

There are obvious underlying reasons for the growth of the asset class. The report notes high oil prices have boosted the average 6.1 percent GDP growth in the region over the last three years, as have increasing liberalisation of economies, reduced restrictions on foreign investment, privatisation of state-owned assets and an improvement in security.

The near three-fold increase in oil prices over four years has provided governments with revenues which they have invested in necessary infrastructure projects. This has led to an increase in private investment and has stimulated growth across the region.

The rapid growth of the asset class has seen dramatic increases in the size of funds raised. Dubai-based Abraaj Capital is currently raising a $2 billion infrastructure and growth capital fund in conjunction with Deutsche Bank,  up nearly four-fold from its second $500 million buyout fund raised in 2005, which itself was an increase of four times on the $116 million raised in 2003.

This stellar fundraising success has been shared by other players in the region such as Dubai International Capital, Key Stone Equity Partners and Global Investment House which have all raised funds of over $500 million. The Carlyle Group is also in the process of raising a buyout fund believed to be around $1.8 billion for the region.

The geographical focus of the fund raising boom has been Dubai. The United Arab Emirates has raised over $5 billion for the asset class since 1998, corresponding to 78 percent of the market. By contrast, its nearest competitor Bahrain has raised $623 million or 10 percent. The deployment of the capital has been pan-regional and international with 11 percent of the region’s funds or $701 million going towards the UAE, $682 million going towards Egypt, while 47 percent, or over $3 billion was deployed in the US.    

Mega deals in the MENA region like the Abraaj Capital-led $1.4 billion buyout of the Egyptian Fertilizers Company have been carried out, while buyout firm Istithmar has made several dramatic forays into the US and Europe with its agreed $825 million bid for Barneys New York and its 3 percent opportunistic investment in hedge fund GLG’s $3.4 billion float. Such eye catching investments have helped deploy the continually increasing funds raised by private equity firms in the region. Satisfied participants in the MENA region’s boom are speculating how the dramatic fund raising growth will continue.