Gulf sees Middle East rising

Karim El Sohl, Gulf Capital’s chief executive and founder, is a confident man. Confident in his firm’s ability to raise capital (it raised a healthy AED2 billion; $545 million fund in 2010, and what it claims is the region’s largest credit fund last year). And confident, too, in his firm’s ability to deploy it effectively. 

El Sohl believes there’s been no better time to do deals in the MENA region. “There hasn’t been much liquidity in the region,” he says. “The IPO market is shut. Banks aren’t lending. That represents an opportunity for private equity to come in and help companies in need of financing.”

In fact, he contends: “There are more deals around than there were in the boom. We see great opportunity in this market dislocation. At Gulf Capital, we’re in a great position – we’re sitting on a large fund and waiting for the right opportunities. This vintage will be a very interesting one in the years to come, I think.”

The figures bear this out to an extent, at least in terms of deal activity (whether or not they’re successful, only time will tell). So far this year, there have been 12 private equity deals worth a combined $1.6 billion in MENA, according to mergermarket – suggesting the region is on course to surpass 2011’s full-year totals of 13 deals worth $2.5 billion. The total value of deals has already surpassed 2009 ($1.5 billion across 18 deals) and 2010 ($1.1 billion across 15). Then again, back in the heady days of 2007 there were 31 deals worth a combined $5.2 billion, so there’s still a way to go.

For Gulf Capital, 2012 has already proved fruitful. It has sealed two buyouts: the acquisition of an 80 percent stake in contract staffing company Reach Group, and an 83 percent stake in Sakr Energy Solutions, a temporary power generation company. 

It has also taken a lead from many European and US groups by raising a credit fund, launching Gulf Credit Partners earlier this year. That fund has already done two deals – a $25 million investment in the Sakr buyout, and a $20 million mezzanine investment in Turkey-based Orion Group in June. So it’s doing its bit to resolve the liquidity problem.

Other MENA stalwarts have been busy too. Abraaj Capital, fresh from annexing emerging markets specialist Aureos Capital, even managed to get a rare IPO away, floating IHH Healthcare Berhad in July in the world’s third largest listing of the year at that point. 

The success of that deal speaks to one of the core attractions of the MENA region – its increasingly affluent middle class. When Abraaj backed Turkish healthcare group Acibadem in 2007, and subsequently invested in IHH before merging the two, it was essentially a bet on regional demographics. A more affluent population, the firm argued, will want (and be willing to pay for) better services like healthcare. So it has proved. 

This is a region that had more than its fair share of tribulations lately, both financial and social. But at Private Equity International’s MENA forum in Dubai earlier this year, there was a sense of cautious optimism and an upwelling of entrepreneurial spirit. If the private equity industry can successfully tap into both, perhaps El Sohl and his peers will be proved right.