Private Equity Newsletter - Fall/Winter 2012 Edition: Negotiating Private Equity and M&A Deals in the Middle East


After a number of ebullient years of activity until late 2007, the Middle Eastern private equity industry is facing new challenges as fund-raising is getting tougher and investors across the board have become more demanding. In addition to all the negative news from the global economic environment, the Middle East North Africa (MENA) region is muddled in its own economic and social issues, including the protests and political unrests in several of its states. This has resulted in trade disruptions, as well as a slowdown in a number of key sectors including the investment activity within the MENA region. This has lead to a deterioration of the region’s economic growth and has negatively impacted investors’ returns across the board. Furthermore, questionable deals concluded during the boom years leading up to the global financial crisis have also deeply affected the industry. In particular, Bahrain's $7.4 billion private equity firm, Arcapita, filed for Chapter 11 bankruptcy protection in the United States in March 2012 after it was threatened with legal action if it did not pay its creditors. The private equity subsidiary of Egypt's EFG Hermes, was, in May 2012, charged with corrupt stock exchange dealings dating back to 2007 over the sale of the state-owned AlWatany Bank.

The past few years have been a period of correction and change in the mindset of the Private Equity industry in the region. The years of frenetic deal making (often times hastily documented and executed) have now been replaced by more introspection and a more careful consideration of deal structures and deal terms by those investors who are still in business. Those investors who are interested to enter the market at this juncture may benefit from lower valuations across the board and may potentially extract more favourable deal terms. We believe that by using the right financial and legal tools to mitigate the risks associated with emerging market investing, investors should be able to overcome some of the challenges and risks inherent to investing in emerging economies such as the Middle East.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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