The founder of one of the world’s leading private equity managers was recently quoted as saying that private equity may be moving from a ‘golden age’ to a ‘purgatory age’, with a humorous tone. While this may be somewhat the case in the West, private equity is booming in the Middle East. It is one of the fastest-growing sources for business funding in the region, thanks to surging oil prices, a local real estate boom, the growing sophistication of Middle Eastern investors and Western institutions seeking new emerging markets. Industries and infrastructure are rapidly privatising and, according to a September 2007 report from the Middle East Economic Digest, there is an estimated $1.5trn (£750bn) of infrastructure and industrial projects currently planned or underway in the Gulf Cooperation Countries (GCC). According to Zawya, a Middle East business information provider, private equity funds devoted to investing in the Middle East and northern Africa grew from $316m (£158m) in 2004 to $5.2bn (£2.6bn) in 2006. Private equity funds formed in the Middle East with commitments of more than $1bn (£500m), and even $2bn (£1bn) when targeting the Middle East, North Africa and South Asia region, are now part of the fundraising landscape with a broadened investor base that includes European and US capital.
A number of crossroads have been reached in the Middle East that private equity investors will find attractive. First, real GDP growth in many Middle Eastern countries is exceeding 5% and GCC economies are among the fastest-growing in the world. Second, Middle Eastern countries, including the GCC, have undertaken to liberalise their economies and are starting to deregulate a growing number of industries. Third, there is a growing number of mid-market owners willing to embrace external expertise and accept private capital in order to expand their businesses while family groups are wishing to exit and cash in on their lifetime’s work. Fourth, Middle Eastern businesses are slowly becoming accustomed to transparency and due diligence requests and are adopting more transparent corporate structures (although they still need to improve their management information systems and corporate governance practices). Finally, exit strategies are increasing. A public market listing is now viable in the Middle East due to the creation of the Dubai International Financial Exchange (DIFX) – which recently acquired a 20% stake in Nasdaq – which should create regional capital markets with enough depth and liquidity in the forthcoming years for successful exits. There is also a growing segment of readily available buyers such as trade buyers and secondary buyers; for example other private equity buyers such as deep-pocketed local sovereign wealth funds, local and international private equity funds.
