Private Equity UAE

From the (MENAFN - Khaleej Times) DUBAI — Private equity industry in the Gulf Cooperation Council (GCC) countries raised $10 billion last year compared to $5.7 billion in 2005 and there is big growth potential for the industry, according to the 2006 annual report of Gulf Venture Capital Association (GVCA).


"The size of private equity funds under management is doubling every year. We expect funds managed by regional companies to exceed $25 billion by the end of 2007," said Ihsan Jawad, Board Member of GVCA and CEO of Zawaya.com.

The GVCA annual report is the first accurate quantification of the size of private equity industry in the region. In 2004, only a couple of billion dollars were managed by regional private equity firms compared to $18 billion managed by them today.

The huge surge in regional liquidity due to high oil prices, the stock market correction and the low interest rate environment have helped the region's private equity industry.

Although the private equity, especially the buyout funds are a recent phenomenon to hit the financial markets in the region, it presents a strong case for portfolio diversification and asset allocation. The MENA region is likely to see the same trend.

According to the report, private equity represents an increasingly popular investment for those seeking returns that can outperform the public markets. Despite the unprecedented recent growth, private equity remains a developing industry in the Middle East region and represents only a fraction of the overall economic activity.

Globally, private equity buyout firms announced more than $700 billion in purchases last year, almost three times as much as in 2005. The top quartile buyout funds have generated net annual returns in excess of 40 per cent in the past 20 years. Historically, private equity players in the region tended to restrict their activity to collecting funds for investment in pre-identified opportunities. More recently, they are collecting funds prior to seeking opportunities to invest the funds in ventures both in the MENA region and worldwide.

GVCA report reveals that real estate sector emerged as the most attractive sector among PE firms, accounting for $2.8 billion investment followed by the financial services $750 million and the travel and tourism $650 million.

GVCA's survey on the impact of private equity and venture capital on companies receiving investments from private equity reveals that nearly 40 per cent of the respondents cited a need for additional growth capital as the main reason for receiving private equity and venture capital, while 27 per cent felt that private equity was an important means of buying out existing shareholders. Overall none of the companies experienced a decline in financial performance after they received private equity funding.

On the contrary, companies reported average increase in annual revenue and net profitability of 37 per cent and 24 per cent, respectively. The survey also indicated that more than 50 per cent of the interviewed companies have benefited from non-financial contribution in terms of developing strategy, financial advice and industry knowledge.

While $6.5 billion has been invested in the region by private equity players since 1998, only 5 per cent has been realised on exit. According to the report, private equity firms based out of the UAE have undertaken the majority of investments made by firms based in MENA region.

Investments by UAE private equity firms totalled $5.1 billion or 78 per cent of the total investments by MENA-based private equity firms.