EMERGING MARKETS SPECIAL: MENA REGION

Oil will perhaps always be the first thing that comes to mind when considering the economic engines in the Middle East and North Africa (MENA). But private equity investment opportunities, which are, of course, inextricably linked with the region's oil profits, are quickly gaining ground as an important economic driver. New firms are sprouting up, fundraising is feverish and record-breaking deals are regularly occurring.

For years, MENA-based buyout firms as well as limited partners – particularly sovereign wealth funds – have been active in the asset class. But in the last five years, the region has moved well beyond being simply a source of capital. This year, in particular, has shown a marked increase in MENA's private equity appeal.

“There's been a great expansion in the number of private equity firms and the amount of capital they've been able to raise and the pace with which they're deploying capital,” observes Josh Lerner, a Harvard Business School professor and noted private equity academic.

Between 1994 and 2005, a total of $5.8 billion (€4.0 billion) was raised in the region by private equity funds, 41 percent of which was raised in 2005 alone, according to Dow Jones. In 2006, the cumulative total passed the $10 billion mark. And this year, fundraising may double 2006 levels, according to industry professionals.

This dramatic increase is due in part to the economic boom the region has enjoyed, Lerner says, but notes “it also reflects the desire of the limited partners to be more diversified and have more exposure to their home regions, given the kind of activities taking place there”.

Like Lerner, Frederic Sicre, executive director at Dubai-based Abraaj Capital, attributes much of the shift to robust macro-economic indicators.

A YEAR OF PLENTYThose still in doubt over private equity's ability to establish a permanent foothold region should consider the flurry of activity seen in 2007. The following selection provides a glimpse into the region's burgeoning private equity industry:

JANUARY • US buyout firm Colony Capital sets a new record for the largest-ever MENA deal with an agreement to buy oil company Tamoil from the Libyan government for €4 billion.
• Actis appoints former IFC executive Ahmed Dabbous as head of its operations in North Africa. JULY
• Gulf-based GCC Energy Fund buys a 33 percent equity stake in The Gulmar Offshore Group, a subsea engineering contractor, for an undisclosed amount. The acquisition comes two weeks after the fund led a deal for Oman's Dhofar Power Company. • Dubai-based Rasmala Investments says its first private equity fund, set up in 2000, resulted in a 3x return and IRR of 22 percent.
FEBRUARY AUGUST
• Citigroup teams with CDC, the UK government-owned funds of funds investor, to launch a $200 million African fund. • Guggenheim Partners receives a licence from the Dubai Financial Service Authority in the run up to its opening of a Dubai office.
MARCH • Saudi private equity firm Amwal Al Khaleej pays $37.44 million for a 25 percent stake in Right Angle, an outdoor media business in the UAE.
• US investment agency Overseas Private Investment Corporation commits $200 million to three private equity funds that will invest in Jordan: Foursan's Jordan Fund II, targeting $150 million; Capital Trust Group's EuroMENA fund, aiming for $113 million; and Luxembourg-based Emerging Markets Housing Fund, targeting $300 million. SEPTEMBER
APRIL • Dubai International Capital buys a stake in Rivoli Group, operator of more than 215 luxury retail outlets across the region, for an undisclosed sum.
• The Carlyle Group makes its third MENA hire with the appointment of Firas Nasir as managing director in its new Dubai office. Carlyle recently hired Can Deldag in Turkey and Hassan El-Khatib in Egypt. OCTOBER
MAY • Abraaj holds a $1.7 billion second close on its regional infrastructure fund, moving closer to its $2 billion target. The firm is also reportedly considering publicly listing 20 to 30 percent of its management company on the Dubai Stock Exchange.
• French placement agent Triago recruits Jean Aboumrad, previously director of investor relations at DTZ Asset Management, as head of its new Dubai office. NOVEMBER
JUNE • Dubai distressed specialist HBG Holdings is expected to hold the final close on its $200 million regional fund.
• An Abraaj-led group acquires Egyptian Fertilizers Company for $1.41 billion, the largest-ever deal in the region. It included $1.25 billion of leverage. DECEMBER
• CORECAP, a Qatari alternative asset advisor, launches its debut $150 million Islamic private equity fund, the first to offer a Shariah-compliant mezzanine structure. • Emerging markets buyout firm Zephyr Management is expected to hold a first close on a $500 million pan-African fund, which includes a $250 million investment from Saudi Arabianlisted Kingdom Holding.
• Emerging Capital Partners, the Washington DC-based offshoot of AIG Africa Infrastructure, closes the largest-ever pan-African fund on $523 million.