Focus will be the differentiator, with PE firms focusing on established companies with track record, profitability and solid cashflows. It is worth noting that, globally, PE firms today have $1.6 trillion in their disposal to go on a shopping spree for companies, and that dry powder is slated to grow further as a record number of PE funds are currently on the market to raise an additional $900 billion this year alone. However, considering that the US and Europe have so many PE firms with effectively unlimited dry powder pushing valuations ever higher, investment opportunities in MENA, which continue to be attractively priced relative to other regions, look more and more appealing.
into Shariah-compliant funds have also grown significantly in the past 18 months. MENA VC investment into start-ups ticked up to $245 million in Q1 2021 as investors focused on fintech solutions across the spectrum, as well as e-commerce and cloud kitchens. There have also been several blockbuster VC exits in the last 18 months which have delivered stellar returns for local and international investors alike: Careem sold to Uber in early 2020, InstaShop sold to DeliveryHero, and Lebanonbased music streaming platform Anghami’s merged with Nasdaqlisted SPAC Vistas Media Acquisition Company, which raised $100 million in its 2020 listing.
How have Private Equity Funds performed in the past 18 months?
Do you expect Private Equity firms to become more involved in M&A in the region?
Driven by increased activity and investor appetite for disruptive technology companies, VC is the clear winner globally with an annual trailing return of almost 54% in 2020. These returns remain consistent with strong threeand five-year returns of 30% and 20%. As a result of these returns, GCCbased investor interest in this strategy has grown substantially, even during the pandemic. Greenstone Equity Partners was an early adopter of virtual roadshows, starting in March 2020, and, during the ongoing travel restrictions, was able to leverage its relationships to secure new capital for its fund manager partners at similar or higher volume than 2019 across a number of alternative investment strategies. With more available opportunities in the alternative fund space, investments
In Q2 2021, global PE and VC buyout deals doubled to just over 1,000 compared to Q1 2021. There is considerable pentup demand for M&A and consolidation persists, particularly in the UAE, Saudi Arabia, Qatar, Kuwait and Egypt. Through the first half of 2021, the total value of mergers and acquisitions in MENA reached $44.8 billion. While there is movement, there is still room for more activity. Major sectors in need of consolidation include financial services (banks), healthcare (clinics, hospitals, pharmacies), real estate and hospitality (hotels, restaurants etc.), as well as covid-impacted industries. There are also a number of potential opportunities currently available in the market including in cybersecurity, distribution and construction sectors.
THERE IS CONSIDERABLE PENT-UP DEMAND FOR M&A AND CONSOLIDATION PERSISTS, PARTICULARLY IN THE UAE, SAUDI ARABIA, QATAR, KUWAIT AND EGYPT
Greenstone Equity Partners is also seeing increased interest in infrastructure both from fund managers looking to raise capital from the region and local investors looking to deploy capital into sustainable projects. We expect this trend to continue over the next five years.
Are SPACs (Special Purpose Acquisition Companies) competition or an opportunity for Private Equity? Special Purpose Acquisition Companies, also known as blank check companies, are not new - they were invented in 1993. For many reasons, the SPAC structure languished for the first 25 years in its existence and then exploded into the market in 2020 with unexpected veracity. SPACs raised $45 billion between 1993 and 2019. In 2020 alone, the number jumped to $65 billion and during the first six months of this year, an additional $115 billion were raised by SPACs. According to SPAC Analytics, compared to the traditional IPOs, SPACs went from less than 1% of the IPO market in 2003 to 55% in 2020 and 65% of the IPO market this year. Why are SPACs relevant to private equity deployment challenges? Unlike private equity funds, which have up to seven years to deploy capital, most SPACs have to complete their acquisition in 18 months or must return the money back to investors. The promotors of SPACs, who generally have the most to gain from the transactions, are loath to return money to investors and are therefore routinely outbidding everyone else in the market. Bloomberg recently categorized this as a risk that the SPAC promoters “might agree to disastrously overpay for a company”. The SPAC speculation hit a level in the first quarter of this year where global PE firms from TPG and Riverstone to even Softbank have started their own SPACs with primarily retail investor funds, as opposed to their own funds’ investor capital. The viability of SPACs is open for debate and the post-acquisition stock price gains and losses will dictate if SPACs are here to stay or a short-term fad. mea-finance.com
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