Private equity in MENA to display strong growth

Market sentiment in the Middle East and North African private equity market is buoyant and private equity investments in the region are expected to show strong growth, a survey of industry professionals investing in the MENA region found.

The results from business advisory firm Deloitte indicate 94 percent of the respondents expect private activity investment activity in the MENA region to increase and 71 percent believe exit activity in the next 12 months will also increase.

The findings of the survey show that most respondents are confident about the long term prospects of the industry’s growth in the region, Chris Ward, global head of corporate finance, said in a statement. He added that this was mainly “due to the plentiful availability of capital for investment, combined with a buoyant economic climate in the region. There is a growing awareness of private equity in the region.”

The study notes that average deal sizes are expected to increase as a result of more capital and a larger number of investment opportunities.

Power, oil and gas, real estate and infrastructure are the sectors expected to provide most opportunities for investments in the coming months.

In terms of transaction types, 64 percent of the respondents expect development capital investments to be most popular, while only 17 percent of them feel the same about buyouts. However, 74 percent are of the view the volume of buyouts in the MENA region will grow.

A small majority feel that entry multiples will increase in the coming months. This is attributed primarily to increasing competition for deals, more auctions, all-time high rates of inflation and the healthy growth of businesses. 40 percent of those surveyed, though, believe entry multiples would either remain the same or would decrease due to a reduction in the valuations, flat stock markets and a likelihood of fewer firms entering the market owing to the increasing risk involved.

The main challenges confronting the private equity industry in the region according to industry professionals are a shortage of skilled investment personnel, market regulation and a lack of sufficient investment opportunities.

Neven Hendricks, regional managing partner for financial advisory services in the Middle East, said there is consensus of opinion among industry professionals “the region will continue to see increase levels of investment activity, primarily driven by domestic players and focussed on the GCC, Egypt and Saudi Arabia.”