Regional buyout companies are forecasting an increase in deal-making next year as economies improve and financing for acquisitions gets easier to come by.
"Without a doubt we're seeing that things are improving across the region, and one of the manifestations of this improvement is going to be more deals," said Ammar Alkhudairy, the managing director of Amwal AlKhaleej, a private equity firm in Saudi Arabia.
Executives say a pair of transactions this week by Abraaj Capital, based in Dubai and the region's biggest private equity company, could be a taste of things to come.
Abraaj on Tuesday said it bought an office building in Cairo through its property fund, ASAS. The following day, it announced it would pay Dh2 billion (US$544.4 million) for almost half of the payment processing unit of Emirates NBD, the UAE's biggest bank.
The deal for Network International on Wednesday was one of the biggest in the region in more than a year, according to Yahya Jalil, the director of private equity at The National Investor in Abu Dhabi. The last major buyout in the Gulf took place in March last year, when Investcorp in Bahrain led a consortium of firms to take over Lazurde, a gold and jewellery manufacturer based in Riyadh, in a deal worth $270m.
"There has been a long hiatus, and [the Abraaj deal] is quite significant," Mr Jalil said. "It definitely restores a significant degree of confidence in the market."
Helping along the restoration is more liberal lending by banks. Financing for takeovers is a crucial lubricant for private equity, giving players added financial muscle to do deals. The amount of lending for acquisitions in the Middle East recently climbed to a three-month high, according to Bloomberg data. HSBC and Standard Chartered have recently beefed up their acquisition finance teams in the UAE and are being "very aggressive" about lending, Mr Jalil said.
"One of the things that has changed significantly is the availability of bank financing for leveraged buyouts," he said. "For most of 2009 and 2010 the credit markets were really shut down for firms like us that want to do leveraged buyouts."
Few industry insiders expect next year to be a bumper year for private equity in the Gulf. Against a backdrop of improving fortunes for global buyout firms, coupled with more financing for takeovers, however, they are almost unanimous in saying it will be better than this year.
Signs of better days ahead are already present globally, with about $890bn of mergers and acquisitions have taking place in Europe, the Middle East and Africa this year, up 34 per cent compared with last year.
Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, signalled its confidence in the industry last week when it invested an additional $500m in the Carlyle Group, a global private equity firm. Mubadala originally bought 7.5 per cent of Carlyle in 2007.
Meanwhile, Blackstone, the biggest private equity company in the world, opened an office in Dubai last year as its competitor Kohlberg Kravis Roberts increased its presence in the region.
"General improvement of the outlook translates into a decline in risk perception," Mr Alkhudairy said. "Then you have the availability of liquidity and the availability of investors - people are investing again. For the past year they've been deleveraging and I think now they're taking a more bullish approach."
One ingredient that still may be lacking in the regional buyout recipe, however, may be a viable means for exiting investments. Private equity firms often get out of investments by listing the companies they buy on stock markets, but share prices in the UAE and other Gulf countries have not moved much this year, and an attempt by Dubai's Axiom Telecom to list its shares was scrapped earlier this month due to slack investor appetite.
