SMEs Attracting More Funds From MENA Private Equity Firms

As political uncertainty rises in the Middle East, PE firms are increasingly considering SMEs as a viable investment option.



Small and medium enterprises(SMEs), high growth technology and media companies attracted significant private equity investment last year and were the most active areas in the industry.

According to a report from the MENA Private Equity Association, compiled in partnership with Zawya and KPMG, the private equity sector in the region continued to show significant signs of recovery with both investments and exits growing as compared to the previous year.

The information technology (IT) sector alone accounted for about 40 per cent of the investment volume due to increased activity by venture capital funds in the region.

Dr. Philip Boigner, director of technology investment at the Dubai Silicon Oasis authority and a member of the association’s task force said: “Most economies in the region are growing despite political uncertainty. Private equity houses are capitalising on this trend by focusing more and more on young companies that are on stellar growth trajectories. We have seen this, for example, in the venture capital space, where VCs are investing in ecommerce and digital media platforms that can be scaled across the whole Arab region.”

Earlier this year the UAE had taken steps to draft a law allowing SMEs to use machinery and other assets to back loans, following reports that bank lending to SMEs was at a dismal rate of 3.85 per cent.

However the scenario is gradually changing with the continued interest of private equity firms in young companies.

Ali El Arab, product manager from Zawya, said that fund managers across the MENA region are making a “marked economic contribution” by focusing on young companies that are looking for investment. This has resulted in an increased number of venture and growth capital deals that have and will continue to benefit the SME community,” he added.

As per the report, the total number of investments in the MENA region rose from 84 to 91 while the total value of funds announced in 2012 increased by $200 million.

However the overall fundraising fell to $400 million in 2012 from $900 million in 2011 owing to smaller fund sizes and global macroeconomic uncertainty, the report said.

The average investment size remained stable at $8 million in 2012, reflecting no increase in the past three years, showing a continued focus on venture capital, growth capital and SME investments.

The UAE had the highest volume of investment in the GCC while Morocco, Lebanon and Egypt claimed the most number of deals by volume in the region.

“With the ongoing slowdown of the more mature markets in the west, the MENA region is likely to remain a region of opportunity as its strong macro-fundamentals continue to drive the region’s economic road to recovery,” said Vikas Papriwal, partner and country head for private equity and sovereign wealth funds at KPMG.

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