Private Equity Struggling to Raise Funds in the Middle East


June 16, 2017

Private equity and venture capital funds are not performing strongly in the Middle East, according to the latest reporting. MENA Private Equity Association published its annual report, which shows a 41% drop in private equity and venture capital funds last year. In terms of the region’s winner, UAE attracted the most interest from private equity funds.


The report’s findings


The report showed the region’s private equity and venture capital funds stood at $582 million last year. This declined from previous years, with total investment in the region also dropping. The total investment value in 2016 was $1.13 billion, which is a 24% decline from the previous year.


According to the report, the decline was largely down to a tougher economic climate in the Middle East and elsewhere. The report also pointed its finger to geopolitical factors, which have had an impact on investor perceptions. Investors have become more cautious about investing in the region. All of this has led to different expectations between buyers and sellers and, therefore, influencing the pricing as well.


The changing deal type in the region also explains part of the drop in investment value. Private equity deals increased from 2015, although at a relatively slow pace. There were 69 private equity deals last year when in 2015, the number stood at 53. On the other hand, venture capital deals, which typically come with a smaller ticket size, increased. The number of deals jumped from 122 in 2015 to 175 in 2016.


The National quoted Sam Surrey, principal director of Deloitte’s Middle East Financial Advisory team, who 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.”


Regional performers


In terms of national performance, UAE dominated much of the investment landscape. The country took home 63% of the total investment value in the region. This is an impressive figure considering the country only attracted 7% of the investment value in 2015.


The UAE also led in terms of deal volume. Around 34% of the deals in the region were made with the country’s firms. The country was followed by Lebanon with 16% of the deal volume and Egypt and Saudi Arabia at 8%.


Saudi Arabia took the biggest hit in terms of declining investment value. In 2015, the country took home 21% of the total investment in the region but last year, the figure stood at 9%. The country has been suffering from low oil prices but its potential regulatory and fiscal reform is also keeping investors at bay.


The whole of the region is going through reforms in order to reduce reliance on the oil and gas sector. Fintech is one of the driving forces of entrepreneurialism in the region and one reason venture capital investment is increasing.


Dr Helmut Schuehsler, CEO of specialist private equity firm TVM Capital Healthcare Partners and a member of the MENA Private Equity Association’s Steering Committee, told CPI Financial, “There seems to be a true grass roots entrepreneurial movement that has not only benefitted from governmental support in some countries, but also attracted increasing amounts of venture capital. I firmly believe that this development will make the investment sector more active and vibrant, provides better diversification for investors and ultimately will create exciting new companies in the region.”

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