2012 has so far not lived up to expectations of being the decisive one for the private equity industry. Many funds are still waiting for the right time to exit their investments at the best possible price in order to generate returns for their Limited Partners.
On the other hand, investors are not giving up. Several fund managers have launched funds during the first quarter of the year and into the early days of the second quarter.
Q1 2012 witnessed a decline in the number of exits compared to the same period last year; marking one exit in comparison to four. However, funds made 19 new investments during the first three months of the year, a 50% increase in the number of deals compared to Q1 2011.
Source: Zawya Private Equity Monitor
The UAE was the main attraction for deals closed during Q1, capturing almost a third of the total number of deals, followed by Morocco and non-MENA countries like Turkey. At the bottom of the list were Egypt, the Palestinian territories and Jordan with a 5% portion each. These results were a drastic change from the Q1 2011 pattern, where non-MENA nations hosted most of the deals during the period, followed by Egypt.
Source: Zawya Private Equity Monitor
The IT sector captured 53% of investments in Q1 2012, maintaining its slot as the most attractive sector for PE funds. Most of the IT deals were in internet websites offering various online services ranging from financial and banking services, online vouchers, web-based magazines and others. IT was followed by media with 16% (replacing healthcare), industrial manufacturing and services (both improving their share of the action compared to the previous period).
Remarkable Deals
The first quarter was marked by some remarkable deals in terms of size and geographical positioning, with Abraaj Capital through its Al Kantara Fund investing in Saham Finance, one of the biggest insurance companies in the region, recently acquiring a Lebanese insurance company.
Three remarkable deals were also reported in Turkey during the first quarter through NBK Capital Mezzanine Fund I, InfraMed Infrastructure Fund and Eastgate MENA Direct Equity. And although no financial data has been released on these investments, the nature and the business of the acquired companies indicates that significant amounts have been deployed.
Another set of deals that captured attention were five investments announced by the Middle East Venture Fund late March including two second rounds of investments in the Lebanese PinPay and the Hong Kong based Falafel Games, a clear indication that the fund's initial investment in these two companies was showing positive progress.
Venture Capital Shines
Venture capital investments remained attractive like previous years, with 53% of all PE investments being VC placements with an average size of USD 863,000 per ticket. VC was followed by growth capital investments, which accounted for 26% of the pie, followed by buyout investments with 11%, and finally infrastructure and mezzanine investments accounting for 5% each.
Launch Activity
The first quarter of 2012 witnessed the launch and fundraising of multiple funds in the region. On the fundraising side, around USD 50 million were raised by venture capital and growth capital funds. Three Tunisian funds were announced in the quarter - two growth capital funds and one seed capital fund.
A venture capital fund was launched in the UAE, and Morocco witnessed the launch of the first private equity fund under the new legal structure dedicated for this type of funds.
It is clear that the focus on small businesses, a trend that has appeared in recent years, continues.
With strong economic fundamentals and a young dynamic population, MENA's economic outlook is positive, which is a good incentive for private equity fund managers to establish more funds and for investors to commit more capital to the region.
The article was part of Zawya's Private Equity Monthly Insight, May 2012 issue.
Zawya 2012
