Slogan or Salvation : Operational Value Creation in MENA Private Equity

Private equity (Private Equity) industry in the MENA region enjoyed significant growth between 2002 and 2008. However, the collapse of global financial markets catalyzed a fundamental shift in the industry. According to many industry experts, the pre-crisis playbook for generating private equity returns in the region was to focus more on industry growth dynamics than the company-specific fundamentals. This strategy of multiple arbitrage was especially popular, given that leverage was never widely available for transactions in the region. Therefore, after the financial crisis and the corresponding collapse of trading multiples, company-specific operational value creation (OVC) remains the major remaining tool to generate returns.

With this context, our white paper attempts to understand how the MENA private equity model is evolving to this new world order, particularly regarding OVC. Unfortunately, academic and industry literature on the private equity industry in the region is limited. Furthermore, there have not been enough exits in the region to assess the success of new strategies and business models that have been implemented by Private Equity funds. Therefore, we have conducted a survey and qualitative interviews with General Partners (GPs), Limited Partners (LPs) and portfolio company management to identify the major themes in the industry’s evolution as a reaction to the growing importance of OVC (see Methodology in Appendix).

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