The return of buyout firms to Egypt is boosting investor appetite for share sales as a period of political turmoil is replaced by improving business confidence.
Egypt is the Middle East’s only bright spot for IPOs, a recent EY report said, following this year’s oversubscribed offerings from Orascom Holding, Orascom Hotels and Development, and the food manufacturer Edita raised a combined total of more than US$1 billion in new equity.
Beltone Capital, an Egyptian investment bank, is planning to IPO four further companies over the year, including, through its private equity arm, a $120 million investment vehicle that will be listed on the Egyptian Exchange. Six further Egyptian companies plan to tap equity markets in the year ahead, according to the data company Zawya.
This new eagerness to list has been led by a resurgence in confidence among private equity firms, who see company valuations rising above their depressed levels over the past four years.
“Private equity firms are coming in from the Gulf and Europe, as well as North American investors for the first time. We haven’t seen North American investors looking seriously at Egypt for six or seven years,” said Mohamed Ghannam, a partner at Baker & Mckenzie, who advised Abraaj on its takeover bid for Bisco Misr, a household confectionery name in Egypt. “The fact that we are having private equity firms looking at Egypt and seeing opportunities is definitely a vote of confidence in the business environment.”
Egypt is currently host to 11 private equity funds searching for limited partner commitments to invest in the country, according to a report from the Emerging Markets Private Equity Association published last month.
Gulf Capital made a $52m investment in Middle East Glass Manufacturing last September, while a host of regional private equity firms made bids for Bisco Misr.
Kellogg’s eventually won a bidding war with Abraaj Capital, in a battle that highlighted the opportunity for foreign firms. In making the purchase, Kellogg’s bought a high-volume, low-cost producer, with a market expanding both as Egypt adds hundreds of thousands of people a year, and living standards rise.
The interest of a “strategic investor” like Kellogg’s is good news for private equity investors, said Sharif El Akhdar, a partner at Egypt-focused Beltone Private Equity, which has $500m in assets under management.
“Private equity companies like it when strategic investors start to look at the market, because you then also see financial investors looking at the market. It brings competition, and will lead to increases in valuations – but that’s good for the market, because it will help investors to shrug off bad sentiment from their shoulders,” Mr El Akhdar said.
Egypt’s swelling population – set to grow from 90 million now to more than 100 million by 2030 – creates a massive opportunity for foreign investors in industries that boom as the population increases – like real estate, health care and education.
Cairo is one of the world’s most densely populated cities. According to the research firm Euromonitor International, it has a population of 45,000 per square kilometre – one-and-a-half times the population density of Manhattan, at 30,000 people per square kilometre. “The type of opportunity you get in Egypt is very different to what you get in the Gulf,” said Youssef Haidar, a partner and managing director at TVM Capital Healthcare Partners, a private equity firm which has $110m in assets under management, and plans to have launched “two or three” new investments in Egypt’s healthcare sector by the end of next year.
“In Egypt we’re working on demographic plays that are feasible, scalable, that don’t rely on the welfare system and that are targeted for middle, upper-middle class and rich people,” Mr Haidar said.
“When you look at the Cairo market that’s 20 million people – you could be tackling more people than the entire population of the United Arab Emirates within a two-hour drive.”
Beltone Private Equity has also been looking at investments that grow along with the population.
“We’re looking at sectors that have a huge consumer story, energy, utilities housing, healthcare, pharmaceuticals, financial services, education – any consumer-focussed businesses,” Mr El Akhdar said.
abouyamourn@thenational.ae
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