The total number of investments in the Mena region during 2012 witnessed an increase to 91 from 84 year on year, while the total value of funds announced increased by $200 million compared to 2011, a report said.

Overall fundraising fell to $400 million, from $900 million the previous year, driven down by smaller fund sizes and global macroeconomic uncertainty, added the 2012 Private Equity and Venture Capital in the Middle East Annual Report released by the Mena Private Equity Association, a non-profit entity.

According to the report, the sector continued to show signs of recovery in 2012 with investments and exits both registering significant growth. The report also revealed that small and medium enterprises (SMEs) and high growth technology and media companies attracted significant investment and were one of the most active areas in the industry.

On the other hand, private equity had suffered from persistent uncertainty in Europe and depressed fundraising environment in 2012. Mena managers focused in 2012 on enhancing value and exit opportunities for their current portfolios. The report concludes that while private equity activity in some countries remains depressed due to uncertainty, investment in these countries is expected to return to historical levels in the short to medium term.

Average investment size remained stable at $8 million in 2012, with no increase in the past three years, reflecting continuing focus on venture capital, growth capital and SME investments. Buyouts and other large deals of above $50 million are increasingly rare.

Non-cyclical sectors such as oil and gas, healthcare, and education accounted for nearly 60 per cent of investments in 2012. Separately, ICT alone accounted for 40 per cent of investment volume due to rising activity amongst venture capital funds. Sectors hit by the global financial crisis, such as real estate, construction and financial services, remained less popular.

UAE topped the list of the volumes in the GCC. Morocco, Lebanon and Egypt claimed the most deals by volume in 2012; Even so, Egypt fell short of past performance this year as the country struggled with lingering political instability and economic uncertainty leftover from the Arab Spring, while Turkey emerged as a popular destination outside of Mena.

The number of exits completed during 2011 and 2012 increased compared to 2009 and 2010.

Dr Philip Boigner, director of Technology Investment at the Dubai Silicon Oasis Authority and a member of the association's VC Task force said: "Most economies in the region are growing despite political uncertainty. Private equity houses are capitalizing 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.”

Imad Ghandour, managing director at CedarBridge Partners and a member of the association’s Steering Committee, commented: “Over the past 7 years, the industry has evolved and matured. It peaked and declined. Some of our members have reached global prominence, and others have withered and closed down. But the industry as a whole has endured and continued as a reflection of its members’ determination to prosper.  This collective persistence to thrive will be translated sooner or later to a reversal in the current trends, highlighted later in this report.”

Ali El Arab, product manager from Zawya, added: “We see a clear trend in the industry where many fund managers across the Mena region are making a marked contribution to economic growth.

“For example, Fund Managers are giving more attention to young companies who are looking to grow their business, and this has resulted in a higher number of venture and growth capital deals which has and will continue to benefit the SME community. Similarly, Private Equity houses are committed to improving the value propositions of their portfolio companies and this has led to a number of successful exits during the past two years.”

Vikas Papriwal, partner and country head for Private Equity and Sovereign Wealth Funds at KPMG, said: “Although 2012 was a challenging year for the PE and VC industries in the region, we did note an increase in investment activity both in terms of the number of transactions and the total value.”

“The medium to long term outlook for the PE and VC industries in the region remains positive. 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,” he concluded.

The report was compiled in collaboration with KPMG and Zawya. – TradeArabia News Service