Those on the outside of the private equity (PE) marketplace frequently view the Middle East as a potentially lucrative opportunity. The same can be said of those who observe but only know little about public markets, assets, and commodities, too.
Given the picture of wealth and opportunity we frequently see, particularly in the Emirate nations, it is easy to see where such assumptions originate, however, anyone who has had their own, or their PE firms’, money invested in the Middle East in recent years will tell a different story.
The market peak came in 2006, when £3.2billion worth of deals were completed in the region. In contrast, the final deal figure for 2013 failed to clear £800million.
The two big problems have been the financial downturn, and then the Arab Spring. Markets appeared set to recover in 2011 only for the Arab Spring to start in December 2010. The troubles in many areas continue today.
Although the Arab Spring originated in North Africa, this region is closely tied to the Middle East economically, and as protests spread towards the region, the impact became more profound. Commentators believe the time is now for a real recovery and sustained growth in the Middle East PE markets. A U.S report published in late 2013 outlined reasons why it may be “time to take the plunge.”
Places to Avoid, Places to Embrace
Despite the positive outlook surrounding the region in general, the unstable political situation in some nations is keeping investment away. Edwards Wildman partner Tolga Isman told Private Equity News, “[Part of the reason for decline is] Egypt and Syria were very large markets for growth companies. The political situations just do not permit investments.”
All the investments that are happening in these unstable regions are from internal PE firms, and even they are changing focus somewhat. Many are gambling on longer-term investments and committing for 10 – 15 years in the hope that the current situation will evolve and the countries will once again become large growth opportunities. International investors aren’t considering this approach, and are sticking to the traditional 5 – 7 year investment model.
These individuals and firms are targeting Turkey and Saudi Arabia. Although entering these markets is notoriously expensive, both countries have continued to outperform the general economy and the PE marketplace, which makes it worth the expense given the likelihood of generating a profitable return is high.
Turkey, in particular, is seen as a highly attractive PE destination, particularly as the country moves closer to Europe politically and continues to push for accession to the European Union. The Middle East in general is unlikely to become an all-round hotbed for investment, but selected locations are sure to be highly competitive and present lucrative opportunities in both the short and the long term.