The report was based on a series of regional in-depth interviews and online surveys conducted with private equity firms and general partners from leading firms investing in the MENA region.
The interviews covered a wide range of topics from the impact of PE firms on the global crises and the recent Middle East protests to new dynamics of the PE industry over the next five years.
Overall, the report found that the industry remains confident for the remainder of 2011.
This sentiment is driven by the fact that the GCC, which is the economic engine of the region, has been largely sheltered from the Middle East protests and prospects for its economic growth remain strong.
The research has shown confidence returning to the PE sector in the countries worst hit by the Arab Spring and the global recession.
The firms are particularly optimistic about the prospects of sectors such as healthcare, education, consumer goods and oil and gas, which are likely to benefit from government spending plans and regulatory changes. Industries such as railways, toll-ways, ports and utilities are also attractive to investors as they draw billions in capital spending.
Commenting on these findings, PwC's leader in Middle East corporate finance and private equity, Yousef Bazian, said: "We conducted this research over a large scale of firms; what's interesting is that findings show PE firms plan expansion outside the region in places like Turkey, India and Sub Saharan Africa, and several firms are even considering riskier markets such as Iraq."
Yousef added: "Within the region however, PE firms say they are likely to invest more in Egypt, Saudi Arabia and United Arab Emirates."
However, the report highlighted areas that remain a challenge for the region; in contrast to other emerging markets, the level of fundraising, investments and exits in the MENA region remained well below pre-crisis level, despite the renewed growth of the regional economy. According to the IMF, the MENA's aggregate GDP grew by an estimated 3.8 percent in 2010, up from 1.8 percent in 2009. But neither the number of new acquisitions nor the number of exits exhibited much sign of recovery from the 2009 lows.
Furthermore, the number of exits in percentage terms seemed to exhibit a robust increase of 67 percent in 2010.
However, in absolute terms, the increase was only to a 10 from the incredible low of six recorded in 2009; this number remained far below the peak of 2008 when 24 exits were realized. And in fact, most GP's are delaying exits till 2012 due to the lack of liquidity in local stock markets and the limited appetite among trade buyers.
In addition, scarcity of investable companies and limitations on the ability of PE firms to obtain controlling stakes could continue to hamper deal flow.
Industry dynamics presented in the report may force PE firms to rethink their way of conducting business, from the way of sourcing companies to value creation, structuring controls and reporting.
The political uncertainties affecting some MENA countries may also offer new long-term possibilities for PE firms in areas such as small and medium enterprises, Greenfield projects and distressed companies.
The report also highlighted regional trends, specifically; Saudi Arabia for example has increasingly enticed PE capital. By 2010, the country moved to second place in the region as a destination for PE investments, up from fourth in 2006.
Closely behind as the second largest economy of the MENA region in 2010, the UAE accounted for 17 percent of the aggregated MENA GDP, despite its small population.
As for Egypt, the IMF anticipates a fall in the rate of GDP growth to 1 percent from 5.1 percent in 2010, given that this projection is based on the assumption that disruptions to tourism, capital flows and financial markets remain short lived, it might even be regarded as optimistic.
Stephen MEZIAS, professor of entrepreneurship and family enterprise, INSEAD Abu Dhabi, said: "As our findings suggest, the PE industry in the region is confident and remains positive, which signals an era of future growth. We foresee enormous opportunity for those firms that are able to identify these key growth areas and embrace a new way of conducting business."
Although the boom years of 2007 and 2008 are gone, in a region full of promise and change, PwC and INSEAD's studies show that the long term winners, will be the PE firms who anticipate, if not influence, how the future is being shaped.
