Private Equity 2016 Guide Sector Report

By Suhail Ahmad, Management Consultant and Portfolio Adviser to Hikmah Capital Corp. He can be contacted at [email protected]


With falling crude oil prices, slowing Chinese economy, and a struggling Eurozone, it is no surprise the Private Equity (PE) activity in the Middle East has been challenging. However, despite these headwinds, PE activity overall looked respectable with a strong showing of $2.7 billion in deal value by end of September 2015. However total deals fell by over 50% compared to last year. Perhaps the decline in crude oil prices may have a silver lining for Islamic PE as countries reliant on oil revenue may finally see the benefits of a diversified economy and support regional PE growth to help diversify the region’s economic base.

2015 a Review

According to Al Masah Capital, a total of 24 PE deals worth $2.7 billion were reported as of September 2015 compared to a total of 58 deals worth $285.3 million during the same period in 2014. On the other hand, there were just 5 PE exit deals reported until September 2015 worth $36.21 million, compared to 16 PE exits during the same period in 2014 worth $167.43 million.

If we were to exclude the $2.64 billion deal in Algeria, the total values of deals in the Middle East North Africa (MENA) region were only $34.25 million. The slowdown can directly be attributed to the decline in oil prices and increasing geopolitical uncertainty with civil wars in Syria and Yemen.

Al Masah Capital founder and chief executive officer Shailesh Dash said: “Our experience in market research suggests a pick-up in private equity activity during H2 2015 with stabilization in oil prices especially in consumption-led sectors such as healthcare education retail and food and beverage. The UAE Saudi Arabia Lebanon and Egypt are expected to be frontrunners in private equity activity during the second half of 2015.”

Sectors like IT retail and healthcare followed by telecom financial services industrial manufacturing food and agriculture oil and gas and media observed dynamic movements in private equity during 2015.

Some of the key PE transactions this year include the Dubai International Capital (DIC), the private equity arm of Dubai Holding, announced completion the sale of Almatis, the world’s leading supplier of premium alumina for the refractory, ceramic and polishing industries to OYAK, Turkey’s largest private pension fund. The completion of sale was after receiving all relevant regulatory approvals.

The Abraaj Group was particularly active in the year with its announced acquisition of Yu-Ce Medical, a leading disposable medical supplies manufacturer in Turkey and acquisition of majority stake in Urbano Express, a leading courier and light logistics solutions company in Latin America with operations in Peru, Ecuador and El Salvador. Abraaj Group also announced the final close of its second dedicated North Africa private equity fund at $375 million and brings the total amount raised by Abraaj for the African continent in 2015 to solid $1.37 billion. The funds will target well managed, mid-market businesses in the core geographies of Algeria, Egypt, Morocco and Tunisia.

Its primary aim is to develop investments within local industries, thereby accelerating growth and economic diversification in Qatar through support for private sector.

2016 a Preview

With a strong showing in 2015, Islamic PE growth looks promising next year. The key for Islamic PE to continue growing is the emphasis of the close relationship it has with conventional PE. Particularly the concept of equity ownership, risk sharing, and mutual benefit compared to risk transfer which is still often the case in Islamic banking.

With a focus on development capital rather than leveraged buy-out (LBO) and distressed buy-out transactions, Islamic PE firms can build an attractive risk profile and differentiate themselves better from the conventional PE firms.

A good example is the new private equity offering announced by Qatar Development Bank worth almost $100 million and designed to support Qatari small-medium enterprises (SME). The goal of the fund is to actively contribute to the country’s economic diversification. The term of the SME Equity fund is expected to be up to ten years, five years for deployment and 3-5 years holding period. Qatar Development Bank (QDB) was established in 1997 as the Qatar Industrial Development Bank, a 100% government-owned developmental organization.


Islamic PE no doubt has its growth challenges but considering the increasing awareness of the benefits of PE as a source for economic growth and diversification, the industry needs to capitalize on this aspect to continue charging forward. Only then can Islamic PE be considered a formidable force for job creation and economic development in the Islamic economies of the Middle East and Far East Asia. And attract the significant capital from the Islamic institutional investors (Islamic banks and Sovereign Wealth Funds) to become a vibrant segment of the Islamic finance industry.

This article was first published in the IFN annual guide 2016

Private Equity 2016 Guide Sector Report