PE firms in Middle East will close - experts

SECTOR SATURATION: The Middle East has too many PE firms competing for the same business. (Getty Images)

An overloaded private equity (PE) sector in the region will result in some firms being pushed out of the market in the next two to three years, according to industry experts.

The warning comes in the wake of the result of a survey released on Saturday that said senior executives working in the PE industry in the Middle East and North African (MENA) region were optimistic about the next 12 months.

However, industry experts speaking to UAE daily Emirates Business said that with more than 125 operators in the region at present - and more setting up - not all will survive the more turbulent financial years ahead.

"The market will solidify," said Karim El Solh, CEO of Gulf Capital.

“There are simply too many players in the sector. There is a lot of cash chasing few opportunities so there will be a shaking up of a sector and not all of the firms will survive."

His comments were backed by Yahya Jalil, senior vice-president of private equity at The National Investor, who added that in time only the top firms would remain.

'The rest of the pack will wither away over time, as they fail to deliver returns to investors," he said.

Other players such as family and multi-family offices were also working in parallel as investment companies, Jalil said.

"Add that and you have far too many players. Plus all those bankers from Lehman, Merrill and others being laid off who will end up starting hedge funds or private equity funds, so expect to see further increases in the number of private equity funds," he warned.

Saturday’s survey by Deloitte showed that that 60 percent of respondents expected PE investment activity to increase, or at least maintain existing levels in the next 12 months, with consumer, power and healthcare being tipped as the most active sectors.

But, 73 percent of respondents predicted a decrease in exit activity and a further 83 percent believed entry multiples would decrease in response to the global economic downturn.

Chris Ward, CEO of financial advisory services at Deloitte Middle East said: "75 percent of respondents expect an increase in investor appetite for MENA funds as a result of the continued underlying economic growth of the region, the significant financial resources here and, as yet, the wealth of untapped opportunities in the region."

Investors were not being reckless, he added. "Due diligence will once again come to the fore and we are certainly going to see a return to traditional hands-on portfolio management," Ward commented.

PE firms were likely to hold onto their investments until multiples improved, he predicted - adding that "those with capital to deploy will be looking to pick up what they see as bargains."

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READERS' COMMENTS

A good and timely article
Posted by KTurvey, Dubai on Sunday 25 January 2009 at 13:19 UAE time


I know of at least two well-known PE firms in the DIFC who have not made a single investment in two years of operation. Overheads and salaries cannot be paid forever without returns.

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