The private equity market in the Middle East is in a very healthy state with deal volumes and values significantly increasing in 2012, said a report.

The private equity (PE) investors are increasingly seeking opportunities in defensive sectors, according to a report by Deloitte.

Education, healthcare, oil and gas services and basic consumer necessities are also amongst the top most sought-after industries in private equities in the GCC, it stated. 

“The PE market in the Middle East makes up only a small part of the overall Merger and Acquisition (M&A) marketplace. However, it is in a very healthy state with deal volumes and values significantly increasing in 2012, as compared to previous years,” remarked Richard Clarke, managing director, Transaction & Restructuring Services, Deloitte Middle East.

“The financial crisis has impacted the number of active PE funds in the region, resulting in a reduction in total active firms. Yet, the positive side for PE firms is that there is reduced competition for assets,” he added.

According to the report, many PE firms in region are still in the fund deployment mode, and have not yet entered the harvest phase of their fund cycles.

Deloitte experts believe that early fund investments in the Middle East are entering the market either by way of secondaries, IPOs or trade sales. In addition, findings point to the successful practices of strong PE firms in the region, that have spent the past few years preparing their portfolio companies for sale.

Deloitte experts further indicate that Middle Eastern financial institutions are tightening their lending criteria often to the disadvantage of the growing SMEs.

As such PE firms are and will play an increasingly important role in the development of this SME sector helping to bridge the gap between founder equity and short term borrowings.
 
“This capital structure gap is ideal for growth capital focused PE funds. It also allows founders to grow their businesses in a controlled way while still retaining equity upside, a flexible structure which the banking community and  a large corporate partner may not be able to accommodate,” commented Clarke.

In terms of challenges that the PE market faces in the Middle East, Deloitte experts point to sourcing quality deals, valuation gaps between vendor and acquirer, PE differentiation and aligning with Limited Partner’s expectations.

According to Deloitte experts, the biggest worries for the PE executives are the compliance with Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act.

Both these acts have significant repercussions around the globe, with many corporate clients ensuring their suppliers are in accordance with these acts, they added.-TradeArabia News Service