Middle East's largest private equity firm Abraaj Group have teamed up with TPG Capital to compete against KKR & Co for a majority stake in Saudi Arabian fast-food chain Kudu, three banking and industry sources said.

A stake purchase by either KKR or TPG would be their first investment in the Middle East and shows the heightened interest in the region's economic growth and its young and increasingly wealthy population.

Riyadh-based Kudu, which operates more than 200 restaurants in the kingdom, is owned by four individual shareholders, including chairman and chief executive Abdulmohsen Bin Abdulaziz Al Yahya, according to data from Zawya, a Thomson Reuters unit.

Abraaj, the Middle East's largest private equity firm, has recently roped in TPG to the bidding process and was previously bidding solely for the stake, the sources said, speaking on condition of anonymity as the matter has not been made public.

Kudu is worth around 2 billion riyals ($533 million) based on a valuation of around 20 times earnings, one of the sources, a regional private equity banker, said. The firm is expected to have net income of around 100 million riyals this year, the source added.

KKR, TPG and Abraaj all declined to comment, while Kudu could not be reached for comment.

"When you are talking about valuations of around 20 times earnings, you are clearly in a seller's market. There are very few businesses in Saudi for sale and if it's a consumer play, it always commands a premium and lots of attention," the private equity source said.

Saudi Arabia is the largest Gulf Arab economy and its consumer sector is booming.

Coca-Cola Co paid $980 million in December 2011 for a 50 percent stake in Aujan Industries, one of the largest beverage companies in the Middle East, while in the same year Carlyle bought a 42 percent stake in a Saudi-based food franchise operator that runs Domino's Pizza and Wendy's restaurants in the Middle East and North Africa.

Citigroup Inc's venture capital arm and Dubai-based Levant Capital bought a $100 million controlling stake in Saudi Arabian supermarket chain Al-Raya For Foodstuff Co last year.

Reuters reported in June that a majority stake in the business has been put up for sale and KKR was one of the potential bidders.

HSBC Holdings is advising the sellers.-Reuters