UAE to be a hub for PE deals in Mena

Investors’ confidence in the Mena region is gaining momentum, and the next couple of quarters would see more private equity (PE) deals in the region compared to last year, with the UAE, Saudi Arabia and Egypt emerging as hubs of PE deals, a senior official has said.

“There are certainly more PE deals in the region during the first nine months of this year compared to the same period last year. Additionally, there are a large number of deals that are currently being worked on. So I believe over the next one or two quarters, we will see the number of deals increase again,” Richard Clarke, Managing Director (Transaction and Reorganisation Services, Middle East), Deloitte Corporate Finance, told Emirates 24|7.

“From the geographical perspective, Saudi Arabia, Egypt and the UAE would come up as the strongest market in terms of deal activity,” he added.

However, Clarke said fund raising is still very difficult in the region and it will remain so until the end of 2011.

“Until summer of 2008 when the financial crisis took effect, the number of PE funds established in the region was astonishingly high. There were around 140 to 150 funds chasing limited number of deals, leading to stiff competition,” he said.

Two years on, very little has happened in the regional PE space. As fund raising is still incredibly difficult as was the case last year, PE firms need to get some of their capital deployed and give evidence to their investors that they have actually made profits, Clarke added.

Generally things are getting better, though it’s not still back to 2007 and early 2008 levels, he said.

“Definitely there is some momentum and over the next 18 months that momentum would continue to build as the Middle East has got lot of great fundamentals, he said.

Clarke said the most interesting sectors for deal making are healthcare, education, oil and gas, and consumer sector (like foodstuff and consumer retail).

Deloitte is going to release its Mena Private Equity Confidence Survey 2010 on Monday.

Clarke said although the UAE’s economy is smaller than that of Saudi Arabia and Egypt, but it has got many positive factors that would attract PE deals.

“There are more middle class people with reasonably high disposable incomes in the UAE as a percentage of the total population than these two countries. Besides, there is a heavy expat population here, much more so than in Saudi Arabia and Egypt. Additionally, Dubai and the UAE generally have some fantastic companies which need cash impetus, right system, and right framework to expand their businesses to the next level, and PE firms are excellent in bringing that,” he said.

In addition, he said, the gap between what a PE firm is prepared to buy for and what the seller or vendor is prepared to sell for is narrowing down in the UAE and the region, which is a good sign for PE’s revival.

PE firms make most money when they buy in difficult times because they buy a company at low valuation, which rises when the overall market recovers, he said.