Study: MENA returns to falter

A recent survey of GPs in the region finds the global economic crisis has reduced returns and activity level expectations, but the long term outlook for private equity remains upbeat.

The Middle East and North Africa region’s long term growth prospects were given an average rank of 8.2 out of 10 points by a group of 30 global private equity houses.

However, the results of the MENA Private Equity Confidence Survey as compared with those of its predecessor, a study by the same name carried out by Deloitte in the first half of 2008, reveals the outlook for 2009 is only moderately optimistic.

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, 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 higher 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% of respondents noted that they expect investment activity to either increase or stay the same, 53% expect returns to decrease, reflecting reduced valuations of existing investments. PE 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,” said Chris Ward, CEO financial advisory services, Deloitte Middle East, in a statement.

Development capital deals were predicted to dominate over the next 12 months by 60 percent of respondents. Consumer, power and healthcare and Egypt, Saudi Arabia and the UAE were expected to be the most active sectors and geographical regions, respectively.

In terms of investor interest, 76 percent of survey participants anticipated seeing an increase in focus from institutional investors on the MENA region in 2009, with its relative attractiveness in comparison to Western markets and continued economic growth cited as supporting factors.

The survey interviewed a total of 30 global private equity houses with combined assets under management of $46.5 billion.