Private equity activity in Gulf region to increase significantly

In 2017, we expect private equity activity in the Gulf to pick up significantly, both in terms of investments and potential exits.

As banking liquidity tightens, and given that the regional capital markets are not conducive to IPOs (initial public offerings), business owners will turn to private equity firms for growth capital or as a liquidity option to monetise their stakes in their businesses. Private equity in the GCC is increasingly being accepted as a serious alternative to bank financing, potential IPOs or trade sales.

In terms of investment opportunities in 2017, Gulf Capital is increasing its allocation to fast-growing or defensive sectors in the GCC such as food, FMCG, logistics, business services and consumer-led sectors.

One area of focus is the rapidly-growing e-commerce sector. The region’s digital economy is set to double over the next three years, passing the $30bn mark by 2018, after registering nearly 30 percent growth in 2015. E-commerce in the UAE and Saudi Arabia is expected to grow at an even faster pace over the next four years, at 38 percent and 35 percent, respectively.

With a young, tech-savvy population driving some of the world’s highest rates of online penetration, we expect the digital economy in the GCC to grow at a much faster pace than the traditional economy.

Gulf Capital has already closed three transactions in the e-commerce space and intends to increase its exposure to this exciting sector in 2017. In terms of potential private equity exits, we expect more liquidity events over the next two years as oil prices recover, regional markets stabilise and investor sentiment becomes more bullish. As our existing portfolio companies mature and reach a certain size of profitability, we are preparing the launch of a number of sales processes that should attract global strategic bidders and the interest of both regional and global private equity firms. The rise of secondary transactions, where private equity firms sell portfolio companies to other private equity firms, will become a reality and an accepted exit route in 2017, similar to recent trends in Europe and the US.

Private debt and mezzanine financing will emerge as a serious, alternative financing option for SMEs in the region. Asset-light companies still find it difficult to obtain financing from the traditional banking market. Gulf Capital recently launched its second private debt fund to fill this market gap and to provide growth capital to promising companies. Private debt will increasingly supplement local lenders and provide much-needed growth capital to promising businesses in the region.

In real estate, Abu Dhabi continues to develop into a major tourism and retail hub based on important milestones in 2017 and 2018.  The opening of Louvre Abu Dhabi and the Midfield Terminal in 2017, and Al Maryah Central, Abu Dhabi’s next-generation mall, at the end of 2018 will put Abu Dhabi on the map.

Gulf Capital, through our development arm Gulf Related, is supporting the ongoing development of Al Maryah Central, a 2.8 million-sq ft retail-led, mixed-use development located at the heart of Al Maryah Island, Abu Dhabi’s emerging business and financial centre. The project is well on its way to opening in 2018 and we have passed the 50 percent leasing mark, securing over 60 leading international brands, including Abu Dhabi’s first Bloomingdale’s, and the only Macy’s outside the US.

We are bullish on consumer sentiment in the region, which will drive the growth of Abu Dhabi’s retail sector in the coming few years. Our research with Urbis shows that Abu Dhabi’s retail spend will reach $12.18bn a year when Al Maryah Central opens in 2018, and we expect the mall will see 24 million visitors annually by 2022.

Overall, we are hopeful that 2017 will be a productive year across all of Gulf Capital’s divisions. While the last year was marked by a soft economic environment and low oil prices, we expect the prospects for the GCC to recover in the coming year on the back of much-needed structural reforms, successful diversification drives and the recovery in oil prices.

As a long-term investor, we believe that the GCC remains one of the most appealing investment destinations and we intend to increase our investment and real estate development activities in the region in 2017.