Regional private equity keeps its powder dry

Companies are on the hunt for alternative sources of financing presenting an opportunity to cash-flush investors.

Regional private equity players say they are well positioned to benefit from the economic storm as companies look for alternative means to raise funds. "Moving forward, what the crisis has done is make companies turn to private equity players... to look for liquidity, expansion and growth," said Frederic Sicre, the executive director of Abraaj Capital, one of the largest private equity houses in the UAE. "There is still a large amount of dry powder, or money to be invested from private equity funds, available to fund growing businesses." Mr Sicre estimated that of the total of about US$25 billion (Dh91.82bn) of funds raised in the region by private equity firms, less than $10bn had been invested. The latest report by the Boston Consulting Group on private equity outlook estimated that $450bn existed globally in fresh money available for investment. "This shows that private equity players can represent an important source of funding for the future, a source of strategic partnerships to provide growth opportunities," said Mr Sicre. He added that in terms of investment prospects, many sectors in the region were perceived as resilient and facing pent-up demand, including the education and healthcare sectors, and low-cost airlines. "We have four to five years to invest the capital [raised by Abraaj] and we're not looking at any major exits in the next year or so," said Mr Sicre of the company's strategy for the year. "We're also thinking of opening more offices [in the region] over the next few years." As liquidity remains tight, IPOs have stalled and private equity deal flows remain few in number. Regional private equity houses are finding it a good time to raise awareness on how private equity funds can provide growth capital opportunities and promote corporate governance. "We are reaching an equilibrium now in terms of real, reasonable valuations of assets and willingness of asset owners to entertain private equity as an ideal form of capital, now that other forms of financing are less accessible," Carlos Perry, the chief operating officer of the Emerging Markets Private Equity Association (EMPEA) based in Washington, told a conference in Dubai. "The future of private equity has never been brighter; this is a chance for firms to learn more about private equity's reputation as a flexible source of capital to help businesses grow." Analysts say that for private equity models that have not been based on leverage and have managed to accumulate funds, this is a perfect time to seek opportunities in the region. "For private equity firms with cash, there are tremendous opportunities now; the question is more about the value they will bring to the firms they invest in, as the private equity model now demands a more active role in managing and advising the firm," said a fund manager who is based in the Dubai International Financial Centre. Capital raising for private equity funds may not be as easy, as it was in the past few years, but it is not impossible. Citadel Capital, an Egypt-based private equity firm that is involved in regional deals, began planning to raise $550 million for its 15th fund last September. "Our plans were knocked back by about six months; we began [fund-raising] in earnest in September of last year and should be done by the end of the year," said Stephen Murphy, a managing director at Citadel. "Fund-raising is down this year by virtue of the fact that investors are being more cautious and choosing to invest closer to home." Analysts remain relatively optimistic on the regional private equity outlook.w"There is an enormous amount of private equity capital waiting on the sidelines to be invested; sometime in the late part of this year, we'll see a significant uptake in investments," said Mr Perry. [e-mail]