Private equity firms struggle to raise new funds in the Middle East, says report

Firms in the UAE took 62 per cent of regional private equity investment in 2016.

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The amount of new money raised by private equity and venture capital funds in the region dropped by 41 per cent last year to US$582 million – the lowest figure raised since 2011, according to the Mena Private Equity Association’s annual report.

The decline in funding was blamed on the economic climate and regional geopolitical factors affecting external investor perceptions.

Total investment value also fell by 24 per cent to $1.13 billion. This was attributed to a drop-off in the number of deals that had an investment value disclosed, which itself was due to a more challenging investment environment, as well as a mis-pricing between buyer and seller expectations.

The growth in the popularity of venture capital (whose deals typically have a much smaller ticket size) was also attributed as playing a part in the drop in investment values. The number of venture capital deals jumped to 175 (from 122 in 2015), while the number of private equity deals grew at a much slower rate to 69, from 53 in 2015.

Speaking at the launch of the report, Sam Surrey, principal dir­ector of Deloitte’s Middle East Financial Advisory team, said: “The overall number of deals increased, but the decline in the number of higher value, private equity transactions precipitated a decline in the overall total value of investments made,” he said.

The UAE dominated the regional landscape when it came to investments, with 63 per cent of the value invested going to firms in the country – up from just 7 per cent in 2015. Meanwhile, the value of money going into both Saudi Arabia and Egypt shrank.

Just 9 per cent of the money invested last year went to Saudi firms, compared to 21 per cent a year earlier, which Mr Surrey said was partly owing to persistently low oil prices, but also to uncertainty as a result of potential regulatory and fiscal reform.

The volume of the total money invested into Egypt dropped to just 1 per cent of the total, from 19 per cent a year earlier. This was attributed to foreign exchange instability and political factors.

“Its probably too early to gauge the impact of the free float of the currency in November 2016, but Egypt will remain a market that investors have a strong desire to access should conditions prove suitable,” Mr Surrey added.

The UAE also led the way in terms of deal volumes, with 34 per cent of the 244 deals recorded. Lebanon was second with 16 per cent, followed by Egypt and Saudi Arabia with 8 per cent each.

Pinaki Aich, the vice-president of group strategy for the DIFC Authority, said that about 20 per cent of the regulated entities based within DIFC are from the private equity/venture capital community. He argued that the DIFC is gaining ground as a centre for venture capital activity in the Middle East.

“Today, predominantly the VC cluster is pretty much scattered across the region, and there is a need for further consolidation. We’re working very closely with the government of Dubai to see how we can make this overall environment for venture capital more conducive.”

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