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Private Equity Industry in the UAE Set to Change

DUBAI - The UAE, the second leading recipient of private equity (PE) investments in the Middle East, is likely witness a natural shift in the industry’s business model over the next 3-5 years towards larger and more sophisticated deals.

According to a report by Dun & Bradstreet (D&B), a leading financial data and business knowledge provider, PE industry leaders in UAE are concerned about the slow-down in deal flow as well as the overall squeeze on liquidity in the wake of current global financial crisis. “However, the PE industry still retains its overall optimistic outlook for the medium-long term; and expects enhanced investment opportunities, increase in average investment size as well as overall fund size.”

In the Middle East, the UAE has merged as the second largest destination for PE investment over the past decade with a market share of 19 per cent while Egypt emerged as the leading recipient of private equity investments with a market share of 37 per cent.

Saudi Arabia’s share also rose sharply to 15 per cent.

However, within the GCC, UAE holds major share of PE firms with 63 of the total 88 PE firms in GCC concentrated in the UAE alone. Till October 2008, these firms had raised more than $2.8 billion (Dh10.2 billion) worth of funds. As most of the funds are in the fund raising stage, it indicates good prospects for private equity investments in the region.

In a report titled “Industry Perspectives: UAE Private Equity 2008,” D&B said PE industry would undergo a slow-down in deal flow and lack of quality deals.” Owners of large established firms prefer to retain their stake in the company rather than selling their stake to external parties leading to lack of quality deals and slow-down in deal flow.”

“Consolidation is likely: Majority of PE players in UAE forecast a consolidation in the industry, given the rapid increase in number of PE firms and the lack of quality deals,” it said.

issacjohn@khaleejtimes.com