By Gavin Davids
Negotiation tougher as market shows signs of recovery, says CEO Emad Mansour
While the upturn in the GCC economy is good news for the majority of the region’s population, private equity investors will find it difficult to get good deals out of vendors in an improving economic environment, the CEO of Qatar First Investment Bank has said.
In an interview with Arabian Business, Emad Mansour said that the biggest challenge he saw facing the private equity community in the coming year was the strengthening economy, as it would make it more difficult to negotiate valuations and deal structuring with vendors.
“It’s the feel good factor, if business leaders start to feel that the worst is behind us, if people start to feel better about the future, then the private equity community starts to feel a bit of resistance when it comes to valuations and the speed of doing deals,” he said.
“Obviously in 2009 to 2010, this was less of a challenge because people wanted liquidity, especially those who wanted prospects for growth. The banks had closed their doors and said, ‘no more business,’ capital markets weren’t doing very well and tapping into [them] was not an option. The only way to get funding, to get cash, was private equity.”
QFIB, which expects to spend more than $250m on deals in 2011, expects increasing competition from banks as they recover from the economic crisis, but has yet to see investor sentiment reach pre-crisis levels.
“Private equity houses are no long the only option to find growth capital,” Mansour said.
“In 2009-2010, there was a rationalisation of the number of players; a lot of the smaller players have gone out of business, some of the well established players have issues to deal with, particularly in regards to balance sheet and liquidity management. Competition for deals within the private equity community is less than we experienced in pre-crisis levels,”
Middle East private equity investment plunged by 80 percent to $561m in 2009, data from Gulf Venture Capital Association showed, with deal activity thin in 2010.