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MENA Insight Insight MENA An Overview of Trends in Select Sectors and Markets March 2010 Region Snapshot* rivate equity fundraising and investment activity throughout the Mid- dle East and North Africa (MENA) region stagnated in 2009. MENA was 2009 Population: 617.9 million shielded from greater financial contagion during the global downturn % of Population Under P due to the relatively insular nature of economies in the region and limited use 15 Years-old: 35% 2010 Nominal GDP: US$2.5 trillion of leverage. However, many MENA economies were significantly impacted by 2009 Real GDP Growth: 2.2% declining oil prices and reduced capital inflows, forcing local governments 2010 Real GDP Growth: 4.0% to draw down their capital reserves. Additionally, negative headlines such as 2009 Current Account Balance: Dubai World’s debt troubles and default scandals surrounding Saudi Arabia’s US$24.8 billion Saad Group and A. H. Algosaibi & Bros. have shaken investor confidence, feed- 2010 Current Account Balance: ing concerns about financial oversight and corporate governance practices. US$141.6 billion Funds dedicated to MENA raised a total of US$1.1 billion in 2009, a steep decline *All data projected. from the US$6.9 billion raised in 2008. Investments were similarly sluggish in Source: International Monetary Fund, Population Reference Bureau. 2009, although falling less steeply, at US$2.2 billion (34 deals) from US$3.4 billion MENA defined as: Afghanistan, Algeria, in 2008 (67 deals). While 2009 was a challenging year for private equity globally, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, a number of opportunities have emerged for private equity firms in the MENA Lebanon, Libya, Morocco, Oman, Pakistan, Palestinian Territories, Qatar, Saudi Arabia, region. The IMF estimates that collective GDP growth in the region will rise to Sudan, Syria, Tunisia, UAE and Yemen. 4% in 2010, up from 2.2% in 2009, due to an increase in oil production alongside ongoing heavy government spending. To address massive infrastructure require- ments, governments are spearheading projects ranging from roads, ports and power, and are actively looking for private partners. Additionally, many family-run firms are turning to private equity as a substitute for increasingly scarce credit and expansion financing. MENA Region Private Equity Fundraising, 2005–2009, (US$B) 7.0 6.9 6.0 5.3 5.0 4.0 3.2 3.0 US$ Billions 2.7 2.0 1.1 1.0 0.0 2005 2006 2007 2008 2009 Source: EMPEA. © 2010 Emerging Markets Private Equity Association 1 EMPEA Insight: Middle East and North Africa March 2010 Fund I, which has held a first close at US$127 million, and Fundraising Trends the US$300 million Hospitality Development Fund launched by Abu Dhabi Investment House, Ithmaar Bank and Gulf Representing 5% of all emerging markets fundraising, Finance House. Marking another growing trend, both funds MENA funds raised US$1.1 billion in 2009, an 84% decrease are Shari’ah-compliant. The total volume of Shari’ah-compli- from the US$6.9 billion raised in 2008. While a handful of ant assets in the region has risen from US$250 billion in 2004 fund managers are deploying capital in more nascent mar- to US$487 billion in 2008, according to Booz & Company. kets such as Pakistan, Iraq and the Levant, the majority of QInvest and HBG Holdings are among the fund managers funds are focused on opportunities in the GCC and North that have recently launched Shari’ah-compliant funds. Africa. The bulk of funds raised in 2009 are mandated to invest across the entire MENA region—only 12% are ded- Regarding sources of capital, MENA fund managers have icated solely to the Middle East and 8% to North Africa. traditionally targeted local investors. The region’s sovereign wealth funds, family offices and high net worth individuals MENA is a market where relationships matter. Many funds have formed the core of MENA’s private equity investors to that were able to raise capital in 2009 were those with a date. However, many liquidity-constrained sovereign funds strong track record and expansive networks in the region. and other in-region private equity investors are reducing their In May, Capital Trust Group held the final close of its follow- commitments, forcing fund managers to explore alternate on fund in the region, EuroMena Fund II, at approximately sources of funding. The aforementioned GC Equity Partners II US$150 million in August. In the first two months of 2010, was one of the first regional funds to source the majority of its Abu Dhabi-based Gulf Capital also achieved a final close with capital from international investors based in the U.S., Europe GC Equity Partners II raising total commitments of US$544 and Asia. Similarly, Saudi Arabia-based Amwal AlKhaleej is million. Jordan-based Foursan Group held a first close on reportedly looking abroad for funding for its third fund, US$100 million for its second fund, Foursan Capital Partners I, which is targeting total commitments of US$600 million. targeting total commitments of US$200 million. Citadel Cap- ital completed a dry close on its US$500 million MENA Joint Investment Fund in October 2009. EMPEA Insight One of the largest closes of 2009 occurred in March, when Editorial Director The Carlyle Group finalized fundraising for its first MENA Jennifer Choi [email protected] fund with US$500 million in total commitments, mak- Writing and Research ing Carlyle one of the first international players to enter Nadiya Satyamurthy [email protected] a private equity scene historically dominated by home- Harrison Moskowitz [email protected] grown firms. Carlyle is not the only foreign firm taking a Production Manager closer look at the region—global alternative asset man- Greg Farmer [email protected] ager Kohlberg Kravis Roberts & Co. launched a Dubai office in 2009, while France’s BNP Paribas announced its intent in Advertising Opportunities Each issue of EMPEA Insight provides an opportunity for a single mid-2009 to launch a private equity fund targeting commit- exclusive back page advertisement. For a list of upcoming issues ments of US$300 million focused on the Gulf Arab region. and more information about advertising opportunities and rates, contact Greg Farmer at [email protected]. In 2009, government expenditures across MENA in areas About EMPEA including infrastructure and healthcare reached approximately The Emerging Markets Private Equity Association is a non- US$550 billion. In response, several sector-focused funds profit, independent, global industry association that promotes have formed. In May, Abu Dhabi Investment Co. (rebranded greater understanding of and a more favorable climate for as Invest AD) and UBS Global Asset Management held the private equity and venture capital investing in the emerging mar- first close of their joint infrastructure fund at US$250 million, kets of Africa, Asia, Europe, Latin America and the Middle East. For more information, visit us on the web at empea.net. against a final target of US$600 million. EFG-Hermes Private Equity announced its intention to launch an Egypt-focused Data and analysis presented in the EMPEA Insight series is infrastructure fund in the first quarter of 2010, targeting commit- derived from EMPEA’s proprietary industry database, FundLink, ments of US$600 million. Focused on soft infrastructure needs, made possible with generous support from the following insti- TVM Capital MENA launched a healthcare growth capital tutions: CDC, DBSA, DEG and FMO. We gratefully acknowledge fund, which held a first close at US$40 million in February 2010. their contributions. As one of the fastest growing travel industries in the world, MENA has become the focus of several hospitality funds, including SHUAA Partner’s US$200 million SHUAA Hospitality 2 © 2010 Emerging Markets Private Equity Association March 2010 EMPEA Insight: Middle East and North Africa MENA Region Private Equity Investment Activity by Sector, Investment Trends 2009 (No. of Investments, US$m) The private equity investment pace has slowed in MENA economies, with total known investments valued at US$2.2 (4, US$251m) billion in 2009 versus US$3.4 billion in 2008. With US$19.2 bil- lion raised between 2005 and 2009 and only US$11.4 billion (8, US$73m) invested during the same time period, the MENA region is (5, N/A) home to an abundance of dry powder. Executing deals remains challenging due to contentious valuations and governance concerns, particularly within the Levant. However, accord- ing to Deloitte’s most recent MENA Private Equity Confidence Survey, there is long-term confidence in the market with 78% (5, N/A) (6, US$439m) of surveyed firms anticipating increased investment over the next twelve months. While the majority of investments to (5, US$450m) date have represented minority stakes in family-owned enter- prises, a number of control/buyout opportunities are likely to emerge as many local firms face the pressures of operating in Industrials & Manufacturing Media & Telecom difficult economic times as well as transitioning to third and Energy & Natural Resources Technology subsequent generations of family control. Other Infrastructure While the Gulf Cooperation Council (GCC) states, includ- Source: EMPEA; n=33. Note: Exhibit excludes Citadel Capital investment in the Egyptian Refining Co. ing Saudi Arabia and the Emirates, have drawn the greatest portion of investment dollars in the region to date, North Afri- in the second quarter of 2010. Excluding Citadel Capital’s can economies are also seeing increased investor interest. By investments in ERC, Pakistan leads the region from an invest- number of deals, the UAE leads with 33% of the region’s trans- ment value perspective, representing 30% of all transactions actions, followed by Egypt (21%), Bahrain (9%), and Morocco due to a US$361 million investment by Abraaj in Karachi Elec- (9%).
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