Growth capital deals are expected to dominate private equity activity in the MENA region, according to a study carried out by consultancy Deloitte. However, the MENA Private Equity Confidence Survey, which canvassed the opinions of 30 global buyout firms, showed that the industry is predicting a small swing towards PIPE deals – private investments in public equity – venture capital deals and pre-IPO investment activity, following the escalation of the financial crisis.
Some 47 percent of respondents to the survey, undertaken in November and December last year, expected investment activity in the MENA region to increase over the next 12 months, while 40 percent foresaw a decrease. That contrasts sharply to the previous study, which was conducted six months earlier, in which no one anticipated a decrease in activity and 94 percent of respondents predicted an increase.
In the most recent survey, lower confidence and greater caution in view of the market downturn, high valuation expectations on the part of sellers, and a tougher fundraising environment were among reasons cited by those anticipating reduced activity levels.
“Whilst 60 percent of respondents noted that they expect investment activity to either increase or stay the same, 53 percent expect returns to decrease, reflecting reduced valuations of existing investments. Private equity firms are likely to hold onto their investments until multiples improve, but those with capital to deploy will be looking to pick up what they see as bargains,” says ChrisWard, chief executive of Deloitte Middle East's financial advisory services practice, in a statement.