Middle East investors defy the credit crunch

While the credit markets have placed many private equity deals on hold, the ability of investors from the Middle East to deploy capital appears undiminished.

Middle Eastern financial sponsors have traditionally occupied a small proportion of the private equity universe, yet in recent months they have been arguably the most conspicuously active deal-doers.

Dubai: The
macroeconomic
“perfect storm's”
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According to data provider Dealogic, investors from that part of the world have completed private equity deals worth $21.64 billion (€14.6 billion) in the year to date compared with a global deal volume of $769 billion, a proportion of only 2.8 percent. But in the months of October and November 2007 they accounted for 17.7 percent of global volume. 

Middle Eastern financial sponsors carried out 23 percent of their deals so far this year in October and November alone, with $1.46 billion and $3.49 billion invested from five and six deals respectively.

One Middle Eastern investor has been particularly bullish during this period. Dubai International Capital bought UK medical scanning business Alliance Medical from pan-European buyout firm Bridgepoint for £600 million, as well as German chemicals firm Almatis for an undisclosed sum earlier this month. The Almatis bid featured $1 billion of debt provided by Swiss bank UBS at a multiple of six times debt to EBITDA. Last month DIC also bought a 9.9 percent stake in European hedge fund Och Ziff for $1.2 billion.

Abraaj Capital prior to August led the largest deal by a domestic MENA GP in the region, with the $1.4 billion Egyptian Fertilizers Company buyout. The firm is also currently close to raising a $2 billion infrastructure and growth capital fund to invest across the Middle East, North Africa and South Africa, which is now 40 percent invested. Mustafa Abdel-Wadood, a managing director at Abraaj, says the fund will be fully invested in the next 12 to 18 months.

Abdel-Wadood says a “perfect storm” of macroeconomic factors has developed in the region, underlying the significantly increased investment by MENA firms. “Oil is hitting $100 a barrel, there is an infrastructure boom, GDP growth is 7 percent-plus, and governments have made a commitment to privatisation.”

Abraaj is different to many of its peers in that it does not invest in Western markets. However, the Egyptian Fertilizers Company deal and its recent sale of a 24.62 percent stake in Egyptian bank EFG Hermes for around $1.1 billion have shown the firm can carry out hefty transactions in its domestic market.

Abdel-Wadood says the firm would like to increase its capital under management, as it still has to co-invest on large deals.

The figures showing increased Middle Eastern investment activity would have been even more dramatic had Qatari government-backed Three Delta managed to carry off its £12 billion (€16.7 billion; $24.7 billion) proposed takeover of UK supermarket chain Sainsbury’s. However, the investment firm decided to walk away from the deal when it required an extra £500 million in equity to continue.