Private Equity Emerging Markets

Private Equity Investing in Emerging Markets Slows

Private equity activity in the emerging markets sector has declined during the recession and activity is expected to continue to slow down in 2009. However, managers are optimistic about the long-term potential in emerging markets.

A survey by Deloitte finds that 47% of Middle Eastern and North African private equity firms anticipate increased activity in the next 12 months. The report predicts that private equity investment in the emerging markets will pick up as valuations return to more reasonable levels, banks and lenders grant easier access to capital and the mid-market expands. Here are some of the key statistics in this report:

• Global private equity deals down from 1407 deals in Q3 07 to 655 in Q1 09

• Emerging market private equity deals down from 128 deals in Q307 to 51 in Q1 09

• 73% of respondents expect exit activity to decrease in MENA

• 83% expect entry multiples to decrease in the region

“Given the financial and regulatory turmoil surrounding the industry, it is reassuring to see that the emerging markets still view the long-term potential of the industry positively,” said Chris Ward, global head of corporate finance and chief executive of Deloitte Corporate Finance in the Middle East. However, 40 percent of the participants expect a decline in private equity business due to the uncertain economy, valuation expectations and low liquidity. The global economic crisis and the lack of liquidity caused a steep drop in private equity activity.

The research indicated that local knowledge and relationship networks are considered vital. “Across the regions, the consensus of opinion amongst GPs is that proprietary deal flow is key. With deal flow being primarily focused on regional markets, and domestic private equity and other investors accounting for over half of all active players, the emphasis is upon possessing a deep-rooted knowledge and understanding of local markets,” said Chris Ward.

But as credit markets are gradually opening up again and governments in the Middle East region pledged to pour billions of dollars in infrastructure and transport sector, private equity activity is seen increasing again. Source

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