Mena venture capital deals treble

dubai - Consumer goods and IT-related sectors dominate investment activity by volume

Venture capital investments across the Middle East and North Africa (Mena) region tripled in 2015, with the UAE recording the highest number of deals.

The growth in venture capital investments was driven by evolving technologies and an entrepreneurial ecosystem, according a report on the industry launched on Sunday by the Mena Private Equity Association.

In 2015, disclosed transactions rose by 122, reaching 175 compared to 2014. However, the value of disclosed investments decreased marginally to $1.49 billion from $1.57 billion in 2014.

Notable transactions included investments by the Abraaj Group and global private investment firm TPG into the Saudi Arabian restaurant group Kudu; Standard Chartered Private Equity leading a $175 million consortium investment in Fine, an integrated tissue manufacturer headquartered in Jordan, and Warburg Pincus and General Atlantic's acquisition of Abraaj Group's 49 per cent stake in Network International.

The report, 'Mena Private Equity & Venture Capital', launched in partnership with Deloitte and Zawya Thomson Reuters and sponsored by Dubai International Financial Centre, noted that fundraising in the region remained challenging due to economic headwinds, geopolitical factors and the absence of a track record for some players.

The number of funds raised during 2015 stood at 12, with three funds in excess of $100 million. The largest Mena-focused fund raised was The Abraaj Group's $375 million Abraaj North Africa Fund II, a mid-market focused fund, targeting both majority and significant minority stakes. Other major funds raised included the $300 million Egypt focused Duet-CIC Egypt opportunities fund.

The report said consumer goods (including retail) and information technology-related sectors dominated investment activity by volume in 2015, accounting for 30 per cent and 15 per cent respectively; reflecting how venture capital's focus on evolving technology continues to attract investors.

Divestment values increased by 35 per cent and volumes increased marginally from 20 to 21. While IPO exits continue to be challenging, exit transactions were realised through sales to strategic investors. Major transactions included the Abraaj Group's sale of its 49 per cent stake in
Network International and TVM Capital's exit from its investment in ProVita International Medical Centre.

Salmaan Jaffery, chief business development officer at the DIFC Authority, said private equity is continuing to change in scope and focus to meet the changing demands of investors and policy makers alike. "With the right enabling environment in place, the sector has a potential to really kick-start the global economy."

He said with fund management a key focus area of DIFC's 2024 growth strategy, the financial hub allows clients to tap into the vast investment prospects that the region offers, set to be worth $10 trillion by 2020.

Deal trends seen in 2015 are expected to continue in 2016, with fund managers continuing to indicate a strong preference for consumer-driven, defensive sectors and is likely to provide further opportunities to deploy capital effectively.

"However, given some of the headwinds in the market from the impact of oil prices and a perceived gap in pricing expectations between buyers and sellers, 2016 is likely to be more challenging for exit deals with the lack of satisfactory valuations," said the report.

- issacjohn@khaleejtimes.com