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University of Nottingham the Development of Venture Capital

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University of Nottingham the Development of Venture Capital University of Nottingham The Development of Venture Capital and Private Equity in GCC Countries by Abdullah Abdulmuhsen BinHassan 2010 A Management project presented in part consideration for the degree of MBA. i Abstract The rapid economic growth of Gulf Corporation Council (GCC) countries in the last decade, have facilitate the entry of new industries. Private equity industry is no exception, the number of firms and funds grown significantly since 2001. However, the economic recession and the under-developed local corporate governance regulations impacted the flows of international private equity investments, especially, in a region where deal flows and fundraising activities are governed via the local relationships networks, which ultimately resists the investors inflows to the region. Therefore, the study analysis the GCC markets using Wright et al (1992) conceptual framework of private equity development. Doing so will present a well-structured market analysis present the main challenges and drivers of the local market. ii Acknowledgments It is my honor to raise my appreciation to several people helped by their time ad efforts into the success of this study. I would like to acknowledge my academic supervisors, professor. Mike Wright and Dr. Louise Scholes for their helpful guidance, comments and supports throughout the project Moreover, I would like to give special thanks to Mohammed Ibrahim, Richard Clarke, Jeanette Lepper and Sharad Jain for their assistance and patience during the data gathering process. Finally, I would like to express my gratitude to my parents, family and friends for to their support and encouragements. iii INTRODUCTION .................................................................................................................. 1 PRIVATE EQUITY AND VENTURE CAPITAL: OVERVIEW AND CHALLENGES ........................... 4 2.1 The History of Private Equity in The US and Europe ............................................................................................ 4 2.1.1 The US Private Equity ..................................................................................................................................................... 5 2.1.2 The European Private Equity ...................................................................................................................................... 7 2.2 Private Equity Market Structure ................................................................................................................................ 10 2.3 Factors Affecting The Development in The US and European Markets. .................................................... 11 2.3.1 Opportunities Generation ........................................................................................................................................... 11 2.3.2 Infrastructure to Complete Deals ........................................................................................................................... 13 2.3.3 Realization of The Gains ............................................................................................................................................. 14 2.4 The Importance of Private Equity .............................................................................................................................. 15 2.5 The Industry’s Current Challenges ............................................................................................................................ 16 2.6 Sovereign Wealth Funds ................................................................................................................................................ 17 2.6.1 Sovereign Wealth Funds Investment Preferences ............................................................................................ 18 2.6.2 Sovereign Wealth Funds and Private Equity Investments ........................................................................... 20 PRIVATE EQUITY IN THE EMERGING MARKETS ................................................................. 22 3.1 The History and The Importance of Emerging Markets ................................................................................... 22 3.2 Factors Influencing The Industry in The Emerging Markets ......................................................................... 24 3.2.1 Deal Origination ............................................................................................................................................................. 24 3.2.2 Infrastructure to Complete The Deals ................................................................................................................... 25 3.2.3 Realization of Gains ...................................................................................................................................................... 27 3.3 Latest Tends in Emerging Markets ............................................................................................................................ 27 METHODOLOGY ............................................................................................................... 29 4.1 The Research Approach ................................................................................................................................................. 29 4.2 Data Sources ........................................................................................................................................................................ 30 4.3 Questionnaire Design ...................................................................................................................................................... 31 4.4 Limitations ........................................................................................................................................................................... 32 OVERVIEW OF THE GCC PRIVATE EQUITY AND VENTURE CAPITAL MARKETS .................... 33 5.1 History and Background ................................................................................................................................................ 33 5.1.1 The Development of The GCC .................................................................................................................................... 34 5.1.2 The GCC Monetary Union............................................................................................................................................ 35 5.1.3 Origins of Private Equity in GCC Countries ......................................................................................................... 36 5.2 The Development of Human Capital ......................................................................................................................... 38 5.3 Current Trends.................................................................................................................................................................... 39 5.3.1 Fundraising ...................................................................................................................................................................... 40 5.3.2 Investments ...................................................................................................................................................................... 42 5.3.3 Exit ....................................................................................................................................................................................... 46 COMPARATIVE ANALYSIS: GCC VS. CEE COUNTRIES .......................................................... 49 6.1 Overview of Central & Eastern Europe Markets .................................................................................................. 51 6.2 Supply of Opportunities ................................................................................................................................................. 51 6.2.1 The Need of Dealing with Family Succession ..................................................................................................... 52 6.2.2 Growth and Expansion Capital ................................................................................................................................ 53 6.2.3 Privatization of State Owned Companies ............................................................................................................ 54 6.3 Demand for Private Equity ........................................................................................................................................... 55 6.3.1 Capital Scarcity ............................................................................................................................................................... 56 6.3.2 Attitude to Entrepreneurship Risk ......................................................................................................................... 56 6.4 Infrastructure to Complete Deals ............................................................................................................................... 57 6.4.1 Legal Infrastructure and Contract Enforcement ............................................................................................. 58 6.4.2 Tax Stimulus ..................................................................................................................................................................... 60 6.4.3 Development of Professional Services ..................................................................................................................
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