Mena private equity market is vastly untapped

The UAE and Saudi Arabia attracted over 75 per cent of Mena investment activity by value in 2014.

Almost 10 years ago, private equity players were all hungry for Mena investment exposure - clearly apparent in the influx of investment banks and private equity companies in the region. Of late, however, there was a significant change in the private equity investment landscape, no thanks to news of oil price fluctuations, reduced government spending and other geopolitical events. Despite this, however, there are still numerous reasons to remain optimistic.

This confidence springs from the fact that the region is expected to be one of the world's fastest-growing in the next few years, with its gross domestic product projecting to grow at an annual average of 4.1 per cent. Private equity has also long been considered a potent force in the Mena region's financial market. Numerous well-established private equity firms have been funding and nurturing young companies of all sizes across all sectors, and this role has not diminished in spite of the unfavourable circumstances besetting the region today.

The total funds raised through private equity or venture capital in 2014, in fact, reached the highest level since 2008 at $1.229 billion, representing an impressive 65 per cent increase.

According to an industry report which released the figures, the UAE and Saudi Arabia attracted over 75 per cent of Mena investment activity by value, strongly indicating the two markets' scale, stability and increased availability of larger target assets. The increased fund-raising activity by value in 2014 should provide further motivation for new investments in the region in the coming years.

It also helps that the region enjoys a young demographic profile, growing wealth, relatively stable economy due to recent economic reforms and developed entrepreneurial outlook - all of which have been fuelling positive sentiments over the regional private equity industry. These despite the fact that many market participants are still finding it challenging to raise funds due in part to the limited number of general partners with a confirmed track record.

Potential for growth
Still considered at its early stage of development compared to more developed markets, the Mena region has a strong potential for growth. The region is now even showing signs of maturity. For example, over the recent years, a number of private equity-owned companies have been sold at attractive returns on local and international stock exchanges, or through trade sales to strategic buyers, a report notes.

The same report also points out the renewed appetite from major international - and internationally-backed - private equity companies for the regional market.

Further, the report cites the bright prospect of exiting private equity investments through initial public offerings (IPOs). This has become more feasible, the report says, following a resurgence in the regional IPO market as well as Mena authorities' efforts to reinforce regional and global investor confidence. The degree of sophistication in family businesses and entrepreneurs is making Mena more attractive to investors as well. Many family businesses in this part of the world have already discovered the value of having private equity investors on board.

There is no argument that much still needs to be done to fully utilise private equity, given that the industry plays a prominent role in Mena's broader economic development. A fully optimised private equity industry can help build a brighter future for the region by creating value in companies, reducing unemployment, enhancing the standards of living, encouraging local entrepreneurial partnerships and establishing a better business environment. These are huge returns worthy of any investment and effort.

The writer is managing director at Orient Planet Group. Views expressed are his own and do not reflect the newspaper's policy.