Consolidation likely in UAE private equity industry, says Dun & Bradstreet study

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In this report, D&B has provided research-based insightful information about UAE Private Equity industry- including industry structure, current trends and future outlook.

The report highlights that the PE industry in UAE is expecting a natural shift in its business model over the next 3-5 years towards larger and more sophisticated deals. In the wake of current global financial crisis, PE industry leaders in UAE are concerned about the slow-down in deal flow as well as the overall squeeze on liquidity.

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 and higher IRRs. The global economic crisis may also present various opportunities in the form of consolidation and M&A activity in the region.

Some of the key highlights from the study include:

- PE industry in UAE is not completely immune to the global credit crunch: 28% of the respondents foresee economic slow down and 26% highlighted lack of developed financial markets as the main challenges that the industry will need to tackle. The global economic turmoil has made investors apprehensive about pooling their funds, thereby prolonging fund raising cycles for PE firms.

- Distinct shift in focus from 'Opportunistic General' to more 'Specific' funds: The multiplication of funds and presence of large number of fund houses have led to intense competition amongst PE firms. As a result many players have narrowed their focus to one or two specific industry sectors in order to develop relevant expertise. Further, generalist funds require an extensive knowledge base across sectors, thereby enlisting a large pool of resources from varied industry backgrounds.

- 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.

- The PE industry is likely to move from current basic model ( i.e. limited exit options available (IPO, trade sales), mid-size deal involvement ($40-80m), strategic minority stakes and lack of transparency) to a more advanced model over the next few years. The future shape of the PE industry would include controlled buyouts, larger transactions ($100mn), sophisticated financial products (Islamic funds, structured products), growth strategy (willingness of family businesses), expert talent pool (from the West), and multiple exit options (secondary sales).

- Overall, PE industry in UAE remains optimistic (60% of respondents) for the period from 2008 to 2011. 66% respondents have projected more than 20% growth in fund size by 2011

Industry Perspectives, part of the D&B Business Insight Series, is a collection of research reports that focus on business subjects relevant to a select industry at a time. These studies draw from the industry expertise developed by business consultants from D&B's Research & Advisory Services team and the economic research expertise of the D&B Economic Analysis Group.