MENA private equity investment levels expected to rise

"The air of uncertainty hanging over IPO markets gives the PE industry reason to believe that companies needing funds to expand or to refinance bank debt will turn to private equity in increasing numbers in the coming year," said Chris Ward, CEO of Deloitte Corporate Finance in the Middle East.

"However, with our third MENA Private Equity Confidence Survey coming at a time when the region is still feeling the impact of the global economic downturn, it is not surprising to find that the bullish outlook of previous years has been replaced by a more cautious approach."

Utilizing research undertaken for Deloitte by Arbor Square Associates, the MENA Private Equity Confidence Survey seeks to provide a barometer of market perception and confidence amongst private equity professionals focused upon investments within the MENA region.

Canvassing the opinions of General Partners operating at local level, the survey examines how sentiment reflects the current market situation; identifying trends and providing commentary and insight into how professionals regard this region as evolving in the short to medium term.

78% of the general partners that participated in the survey said they expected investment activity to increase in MENA in the coming 12 months. However, with regard to average deal sizes, 49% said they expected them to stay the same in the coming year while 32% expected them to decrease. In addition, 78% of respondents anticipated that exit activity would decrease in the coming year as well as returns on these deals.

"While the industry believes it is a good time to buy, it is less convinced of the merits of selling in this climate and, as a result, exit activity is expected to decline in the coming year. In turn, this will lead to hold periods lengthening and a negative impact on returns."

added Chris Ward.

The survey also reveals predictions for future activity by industry sector, appraisals of challenges facing the PE industry and competitive differentiators between players in the market. A summary of the report can be obtained by clicking on this link.

Key survey findings:

•78% of respondents expect investment activity to increase in MENA in the coming 12 months;
•49% of respondents expect the average deal sizes to stay the same in the next 12 months while 32% expect them to decrease;
•The pharma/biotech/healthcare sector is expected to yield the most opportunities in the coming year;
•78% of respondents expect exit activity to decrease in the coming year and 74% expect returns on private equity exits to decrease;
•Governance, market regulation and human capital deficiencies were cited as the three top challenges facing the MENA private equity industry going forward.