Private Equity

Interesting article arguing that PE model is inherently at odds with bank’s culture of maintaining liquidity. HSBC’s sale of its PE arm to company management (10 years after they sold it to HSBC) is further evidence of the claim that banks are notorious for disposing assets too cheaply in periods of crisis, which is diametrically opposed from the long-term ‘J Curve’ worldview of PE.

Link: http://www.arabianmoney.net/private-equity/2012/03/25/why-is-hsbc-selling-out-of-private-equity-in-the-middle-east/

The Middle East is set for a revival in mergers and acquisitions (M&As) this year following a long lull, according to a recent survey of business leaders by DLA Piper, a global law firm.

The study based on data from 90 online interviews with DLA Piper's regional database showed the Gulf will witness a strong revival in M&As largely driven by improved liquidity, a pick-up in bank lending and the growing financial requirements for regional firms to expand.

Nearly three quarters (71 per cent) of respondents said they expect the maximum number of deals to happen in the UAE, followed by Saudi Arabia and then Qatar.

Link: http://gulfnews.com/business/investment/middle-east-set-for-surge-in-mergers-and-acquisitions-1.994708

Interesting article arguing that PE activity is picking up because (a) valuation expectations of buyers and sellers are converging and (b) PE houses are under increasing pressure to deploy cash. I would have to disagree. The reason more deals are closing is that there are better deals out there. Only the best companies have made it through the tough environment of last 3-4 years and these are the ones that are going to market at this stage to seek growth opportunities. Obviously, PE houses know this and are agreeing to higher valuations for these businesses, which is being interpreted as ‘convergence’ of valuation expectations.

It’s like Warren Buffett said: “it’s always better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

Link: http://www.reuters.com/article/2012/02/08/mideast-privateequity-idUSL5E8D62TH20120208

A very engaging discussion on the relative merits of Blind Pools versus Co-Investment model for private equity. Author argues that while blind pool investing should be preferred not just by PE managers (which is obvious) but also by LPs, as it allows managers to take a more long-term view. In practice, most firms actually have a mix of both, with LPs contributing a small sum to a blind pool in order to gain access to co-investment opportunities.

Link: http://uk.zawya.com/story/ZAWYA20110822070803/

Global PE firms are still seeking deals in MENA despite the ongoing turmoil. In the annual SuperReturn conference in Berlin, the PE community is discussing their thoughts on the current turmoil. Although most players see a short-term impact, there is a realization that it bodes well for the long-term economic prospects of the region. Nevertheless, most PE firms will prefer to wait on the sidelines to see how things shape up in Egypt, Tunisia, Libya and other affected countries before making any further investments.

Link: http://www.reuters.com/article/2011/03/01/privateequity-carlyle-idUSN018839320110301