DnB PE Report_17122008

UAE Private Equity 2008
D&BBusiness Insight Series
Industry Perspectives

2D&B Industry PerspectivesUAE Private Equity Report 2008
Foreword
Dun & Bradstreet (D&B) is the world’s leading knowledge provider, and is committed to providing its clients with the information
they need in order to Decide with Confidence™.
Aspartofthiscommitment,D&BhasestablishedtheD&BBusinessInsightSeries. ProducedbyD&B’steamofsenioreconomists,
econometricians, industry specialists, business and financial analysts the D&B Business Insight Series provides timely, up-to-
date, and insightful information and analysis of business issues related to industry, banking & finance, and the economy as
a whole. The series includes regular business updates, industry analysis, country risk analysis, business indices, and thought
leadership papers. Through these initiatives D&B endeavours to provide research-based, insightful information about industry
structure, current trends, and future outlook to various stakeholders.
IndustryPerspectives, part of the D&BBusinessInsightSeries, is a collection of research reports that focus on business subjects
relevant to a select industry at a time. These studies draw from the economic research expertise of the D&B Economic Analysis
Group and the industry expertise developed by business consultants from D&B’s Research & Advisory Services team.
D&B is pleased to announce the first issue of the Industry Perspectives series. Industry Perspectives: UAE Private Equity 2008
which provides a detailed analysis of the private equity (PE) activity in the region, with a specific focus on the UAE. The report
highlights the current status of PE industry in the UAE in a wider macro-economic context. It analyses the recent industry
structure, growth trends and briefly examines the implications of the global financial crisis on the PE industry. It presents
authoritative quotes from industry leaders and key decision makers of regional and international PE firms.
In addition, the report outlines the future growth strategies that may be adopted by PE firms to capitalize on the opportunities
in the region and to overcome the associated challenges. The report is based on extensive primary research done by D&B and
thus gives an insight into what the industry leaders themselves see to be the future of the PE industry.
Methodology
The findings that are presented in this report are based on a detailed study conducted by D&B business consultants during the
period August to October 2008. The data was collected through in-depth interviews with leading PE firms located in UAE and
the statistics are drawn from the D&B database, supported by industry research.
Acknowledgements
Special thanks to all the respondents for their co-operation and support: Al Futtaim Capital, Abu Dhabi Investment Company,
Algebra Capital, Amwal Al Khaleej, Arab Business Angels Network, Baer Capital, Delta Partners, EFG Hermes, HBG Holdings,
Global Investment House, Growth Gate Capital, Gulf Capital, Intel Capital, Ithmar, MENA Infrastructure Fund, Millennium Private
Equity, Noor Capital, Ras Al Khaimah Investment Authority, Shuaa Partners, The National Investor.

Table of Contents
Key Perspectives from the study 4
1. GCC - Fundamentals of PE remain strong 5
1.1 FDI Attractiveness correlates to increased opportunties for local capital 6
1.2 M&A activity in GCC presents PE opportunities 7
1.3 PE activity in the GCC 7
1.4 Private Equity Synopsis in the GCC 8
1.5 Fund Raising activity in the GCC 9
2. PE Perspectives in UAE 10
2.1 Types of PE Funds 10
2.2 Present and future size of PE funds 11
2.3 Average investment/ticket size 11
2.4 Target investment country/region 12
2.5 Target investment sectors 12
2.6 PE investment opportunities 13
2.7 Target IRRs 15
2.8 Exit Route 15
2.9 Investment strategy 16
2.10 UAE Business Environment-Potential for PE Industry 17
3. UAE Private Equity Outlook 18
3.1 Challenges to the growth of the PE industry in UAE 18
3.2 Major opportunities for growth of the PE industry 19
3.3 Leading financial centre in the MENA region 22
3.4 PE Industry Optimism 2008-2011 22

Key perspectives from the study
PE industry in UAE is not completely invulnerable to the
global credit crunch:
28% of the respondents foresee economic slow down and
26% highlighted lack of developed financial markets as the
key challenges that the industry will need to tackle. The
global economic turmoil has made investors apprehensive
about pooling their funds, thereby prolonging fund raising
cycles for PE firms.
Moreover, stock market volatility has delayed listing by
firms, further curtailing exit routes and realization of
returns for PE players.
In light of the financial crisis, banks reluctance to extend
additional lending will allow PE players to obtain a
greater piece of the investment pie:
Stricter lending norms and reluctance to lend to new
generation entrepreneurs by banks have presented
PE firms opportunities to participate in the funding
process. Further, the financial crisis has made banks
apprehensive of lending to firms other than the
time-honored companies and has made it difficult
to provide collateralized loans to existing customers.
Regional Focus:
UAE, KSA and Egypt are the most preferred markets for
investment by PE firms on account of their macroeconomic
potential and favorable business conditions.
Slow-down in deal flow and lack of quality deals:
Lack of quality deals poses a challenge for PE players. This
is attributed to the mindset of owners of large established
firms who prefer to retain their stake in the company rather
than selling their stake to external parties/investors.
Distinct shift in fund focus from ‘Opportunistic General
funds’ to more ‘Specific funds’:
The multiplication of funds in the region and presence of
largenumberoffundhousesbothhome-grownandforeign
have led to intense competition among PE firms to garner
a large share of the funds. As a result many players have
narrowed their focus to one or two specific industry sectors
in order to develop relevant expertise. Further, generalist
funds require an extensive knowledge base across sectors,
thereby enlisting a large pool of resources from varied
industry backgrounds. This has now narrowed to focusing
on sectors in which the firm has experienced resources.
Shift in fund operations:
Moreover, the trend of‘raising funds first and then scouting
for deals’ is also witnessing a reversal wherein PE firms are
getting more specific on what and where to target their
investments.
Family business present maximum opportunities:
39% of the respondents have cited family businesses to
be the single largest opportunity for PE firms. ‘Growth
Capital’ funding has been the most common type of PE
fund operated by PE firms to enable family businesses
expand and restructure their operations. 23% of PE players
believe that privatization in state-owned assets and Private
Public Partnerships (PPP) are potential opportunities for PE
investments in the region while 20% cited pre-IPO deals.
Consolidation is likely:
Majority of PE players in UAE forecast a consolidation
in the industry, given the rapid increase in number of
PE firms (foreign & homegrown firms) and the lack of
quality deals. Moreover, in light of the financial crisis
the economy is also likely to witness consolidation
among sectors like Financial Services, providing
opportunities for PE funds to support such activities.
Overall, the PE industry in UAE is at its“turning point”moving from the limited exit options available (IPO, trade sales), mid-size
deal involvement (USD 40–80 million), strategic minority stakes and lack of transparency to being on the growth trajectory
with control buyouts, larger transactions (USD 100 million), sophisticated financial products (Islamic funds, structured
products), growth strategy (willingness of family businesses), expert talent pool (from the West), and multiple exit options
(secondary sales).
The report highlights each of the perspectives discussed above in light of the overall attractiveness of the GCC region as a
hub for PE investments.

GCC GDP Current Price (USD billion)
163
349
53
99
16
36
193
376
68
111
20
40
240
464
98
145
24
51
UAE KSA Qatar Kuwait Bahrain Oman
2006 2007 2008
GCC Population (in‘000s)
4229
23697
838
3182.96
749
2546
4486
24289
930
3310
764
2570
4761
24897
1032
3443
779
2595
2006 2007 2008
GCC Current Account Surplus as a % of GDP
22.0
27.3
30.5
51.7
13.3
12.1
21.6
26.7
34.5
47.3
19.9
9.9
27.4
31.2
44.6
45.2
20.3
11.6
2006 2007 2008
GCC GDP Per Capita, current prices (USD)
38613
14733
62914
31014
21123
14032
42934
15481
72849
33634
25731
15584
50383
18655
95167
42159
31302
19463
2006 2007 2008
GCC countries have been experiencing an economic boom
characterized by wealth generated by oil price rise over
the past few years, progressive government initiatives,
diversificationintonon-oilsectors,rapidlydevelopingfinancial
sector and investments in infrastructure. Combined GDP
of the GCC countries was around USD 807.5 billion in 2007
and is expected to double by 2012 in view of the continued
efforts to develop the economies. The region has always been
viewed as a ‘source of potential funds’, attracting the worlds
financial powerhouses and large institutions and in the last
few years, leading private equity companies. Local investment
banks and financial institutions have also entered the foray
and developed their PE businesses to direct capital flow to the
growing sectors of the economy.
The availability of investible surplus has led to the emergence
of Private Equity players as catalysts of growth to generate
profitable returns on investment funds. Further, increased
liberalization and privatization initiatives, favorable
investment climate and presence of large family businesses
have presented numerous opportunities for the development
of the PE industry in the region. PE has become an important
mechanism for supporting entrepreneurs to source capital,
to expand businesses as also to assist Government projects
under the PPP route (infrastructure projects).
Development of the PE industry is due to fund support from
local institutional investors, High Net Worth Individuals
(HNWIs) and Sovereign Wealth Funds (SWFs).The PE funds not
onlypromoteemploymentandeconomicgrowthbutalsoplay
a direct role in improving corporate performance. This could
be through resolving process improvement/standardisation,
succession issues, financial restructuring, facilitating infusion
of technology /expertise or through reorganization of the
businesses.
The macro-economic fundamentals provide a strong case
for PE firms to set-up base in the region to draw upon its
liquidity and channelize it into more progressive sectors of the
economy.
1. GCC – Fundamentals for PE remain strong
Source: D&B, Zawya & IMF
Note: 2008 estimates
The available investible surplus driving the economic sectors in the region is testimony to the growing number of foreign
investors looking to source funds from and to the region.

The emerging economies of Asia and GCC have witnessed a
larger portion of FDI inflows as compared to outflows in the
recent years. Further the GCC region registered the highest
growth in FDI (over 99%) during the decade.
The large foreign investments highlight the importance of the
region as a FDI hub.
The share of each GCC country in the total FDI has been
depicted in the following charts.
In 2007, KSA, UAE and Oman have been the top 3 recipients
of FDI inflows within GCC accounting for 93% of the total GCC
inflows.BeingthefinancialhubofGCC,UAEhasbeensuccessful
in attracting a major portion of the FDI investments. KSA has
been noteworthy, with a 3-year CAGR (2004-2007) for FDI
inflows and outflows recorded at 132% and 452% respectively
on the back of a liberal economy. Kuwait has witnessed an
FDI outflow in the form of investments in infrastructure. It
contributed to more than 34% of the entire GCC outflows in
2007.
In terms of FDI outflows, outside the GCC, USA has received
the largest share of investments from the GCC. However,
increasing number of GCC investors are targeting Asia (India
and China in particular) to diversify their investment portfolio.
GCC investors are also turning their attention to opportunities
in North Africa. This is being driven by recent progress in
liberalizationandprivatizationamonghigh-potentialcountries
like Morocco, Algeria, Libya and Egypt. Given the focus on
infrastructure development in the above region, sectors like
real estate, banking and telecom are in prime focus.
Overall the heightened FDI inflow/outflow activity can be
explained by several factors:
(a) availability of investible surplus,
(b) large infrastructure projects announced and
(c) improvement of business environment in GCC making
businesses more transparent and conducive to receiving
FDI.
1.1 FDI attractiveness correlates to increased opportunities for local capital
Global FDI Inflow, 2007
Source: UNCTAD
KSA
56.6%
UAE
30.8%
Kuwait
0.3%
Qatar
2.6%
Bahrain
4.1%
Oman
5.5%
13253
24318
1138
123
1756
2377
6625
13139
5263
14203
1669
570
GCC 2007 FDI inflow and outflow (USD Million)
Source: UNCTAD
Global FDI (USD Billion)
Source: UNCTAD
Note: The values represent the total FDI inflows and outflows
201.6
489.0
146.2
1.1
546.7
1928.1
640.1
84.4
USA Europe (25) Asia GCC
1990-2000 2007
2007:
41%
59%
2007:
43%
57%
2007:
56%
44%
2007:
51%
49%
The GCC region
registered the highest
growth of over 99% in
the last decade
Global FDI Outflow, 2007
Source: UNCTAD
KSA
31.7%
UAE
16.0%
Kuwait
34.2%
Qatar
12.7%
Bahrain
4.0%
Oman
1.4%
The enhanced FDI attractiveness of the region also correlates to increased opportunities for local capital. Overall, the macro-
economic context in GCC is significantly favorable for PE industry and indicates strong growth over the medium-long term.

GCC is home to 88 PE firms and more than 63 are concentrated
in the UAE alone. These firms have raised more than USD 2800
million worth of funds till date (Oct, 2008). Most of these funds
are still in their fund raising stage.
The graph depicts the distribution of funds on the basis of their
life cycle. 55% of the total funds are still in the fund raising
stage. Of the total funds in the fund raising stage, more than
26% are in UAE alone. Only a few funds (3%), in MENA have
been closed. The relatively large number of funds in the fund
raising stage is witness to the prospects of PE investments in
the region.
“AlotofdealshereintheGCCareprivatedeals,youneedtobuildyourowndealswhichisknowingalotofpeople,knowingcompanies,
working with them and showing the value that you can add. I think that companies are looking for partners that can help them grow
and expand beyond a country or beyond the region. That is why we get approached by companies to see if we want to explore an
investment opportunity, even though they don’t need the money that day. The value add beyond the money is going to become more
and more important not only for the targets, but also for the fund managers if they want to assure superior returns for their investors”,
Delta Partners.
1.3 PE Activity in the GCC
The value of M&A in the GCC region increased from USD 28
billion in 2006 to USD 46 billion in 2007, an increase of 62%
year-on-year. Purchases accounted for more than 90% of the
activity in most cases except Kuwait where most of the activity
was concerned with large sale of businesses. UAE dominates
the M&A activity in the region as depicted in the graph below.
The growing importance of M&A in the region highlights the
opportunities for PE firms to provide support in the form of
expertise and finance for such deals.
“The framework and regulation of the economy in general along
with the health of the capital markets will help determine the
opportunities in the future”, Shuaa Capital.
Purchases dominate M&A activity in the GCC on account of:
(a) a consolidation trend in the industry,
(b) in-organic growth strategy of firms and
(c) the‘buying orientation of the region’. The trend
reflects opportunity for PE firms in the form of‘acquisition
financing’.
All the following investments point to a more resilient GCC
economy and hence the growth of PE firms to direct the
growth capital towards greater economic progress of the
businesses and the economy as a whole.
1.2 M&A activity in GCC presents PE opportunities
PE Funds in GCC & MENA
- Distribution by Life Cycle
Source: Zawya
A developing market for Mergers & Acquisitions (USD Million)
Source: D&B and UNCTAD 2008
S: Sales, P: Purchases
1
2
6
8
8
63
Oman
Qatar
Kuwait
KSA
Bahrain
UAE 14 F
2F
49 L
6 L
6 L
8 L
2 L 2005: There were 23 PE firms
2008: There are about 88 PE firms
UAE outpassing all other countries in number of PE Firms
Source: Zawya
F: Foreign Companies, L: Local Companies
21788
1257
127
1883
2896
6
18429
13264
5613 5721
1879
630
2006 2007
P P P P
P P
P
P S
S
P P
P
S
S
S
S
S
S
0
10
20
30
40
50
60
70
80
0
2
4
6
8
10
12
14
16
18
20
22
24
No.offunds
SizeoffundsinUSDbillion
Size of funds Number of Funds
70
15
9
28 17
1

1.4 Private Equity Synopsis in the GCC
BAHRAIN
-Target : MENA and Libya
-Equity Raised: USD 1,178 M
-Total number of funds : 8
QATAR
-Target : Qatar
UAE
-Target : MENA and GCC
OMAN
-Target : MENA and Libya
KUWAIT
-Target : MENA and Maghreb
KINGDOM OF SAUDI ARABIA
-Target : MENA, Tunisia and Syria
INDEX
No. of firms:
< 5
5-10
>10
Source: D&B, ANIMA and Zawya
“We look at the whole GCC, we believe that there is a custom union, a monetary union almost with a very close peg to the dollar,
there is a cultural union and anything that sells in Saudi Arabia would sell in Dubai. So for us, we don’t look at these markets as being
separate entities we look at them as being one”, Growth Gate Capital.

The ratio of Fund raising/GDP indicates the level of PE
development in a given country relative to its GDP. In the
developed markets of US and Europe the ratio ranges from
4% to 5% in 2007, however in GCC (except Bahrain) it ranges
from 0.30% to 1.17%. In Bahrain the high ratio is on account
of low levels of GDP in the smallest country in the GCC. This
highlights the fact that there is significant potential for growth
in PE in GCC in the long term as these economies mature. The
PE industry in countries like India and China account for 0.43%
and 0.24% of the GDP respectively in 2008.
The D&B country rating underlines UAE as the most favorable
destination over a 2 year time horizon. The rapidly growing
economy is characterized by high per capita GDP, advanced
infrastructure and a business-friendly government. Its
economic success can also be gauged by the number of
international businesses and the large base of qualified
Western and Asian expatriates settled in the country. UAE has
also been successful in establishing itself as a hub for financial
services and PE firms.
However, effects of the global financial crisis are being
witnessed on the banking sector of the economy and have
marginally affected the D&B rating.
The level of exposure of the UAE’s banks towards ailing
financial institutions in US / Europe remains unclear.
The sector is becoming vulnerable to rapid expansion in
mortgage lending, which has been accompanied by a
booming real estate market. A downturn in the market
would lead to a substantial increase in non-performing
loans. The sector is coming under increasing stress as a
result of high inflationary pressures and low short-term
interest rates. Negative real interest rates are causing
deposits in local currencies by domestic savers to drop
significantly.
The impact of the financial crisis will also affect project
funding and rights issues, which had been booming over
the last few years. Infrastructural development was the
key driver of the double-digit real growth experienced
in 2006 and 2007. However, with the costs of borrowing
increasing for project finance, this could slow down new
developments from Q4 2008, impacting on real growth.
However, despite these new factors/developments, the
GCC region, and UAE in particular is rated relatively high, on
account of strong macro-economic fundamentals. The large
number of PE firms, raising funds in UAE is testimony to the
health of the country. The following pages detail the study
conducted by D&B to identify the potential challenges posed
and the opportunities due to the financial crisis for the UAE
PE firms.
1.5 Fund Raising Activity in GCC
Source: D&B, IMF and Zawya
Note: D&B Country rating:
The 'D&B' risk indicator provides a comparative, cross-border assessment of the risk of doing business in
a country and encapsulates the risk that country-wide factors pose to the predictability of export payments
and investment returns over a two year time horizon. The 'D&B' risk indicator is a composite index of four
over-arching country risk categories: Political risk, Commercial risk, External risk and Macroeconomic
risk.
The D&B risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is
subdivided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation
and so on. Only the DB7 indicator is not divided into quartiles.
Private Equity Fund Raising
DB1d DB2a DB2a DB2d DB2d
D&B Country Rating - October 2008
2.8
1.25
0.28
1.53
1.17
1.17%
0.27% 0.28%
1.05%
4.80%
0
0%
2%
4%
6%
0.0
0.5
1.0
1.5
2.0
2.5
3.
UAE KSA Qatar Kuwait Bahrain
PEfundraising(USDbillion)
(USD billion)
Fund raising/GDP,
2008
“Credit crunch has already affected the market, but just because
this market is equity driven and not debt driven, we haven’t really
felt it”, HBG Holdings.

2. PE Perspectives in UAE
D
&B conducted an extensive research among
leadingPEfirmsacrosstheUAEtounderstand
theircurrent&futuregrowthplansandfocus
sector areas.The respondents were top managers at
these PE firms – including CEO, Managing Director,
Vice President and Fund Manager.
The study was conducted from August to October
2008, and as the global financial crisis unfolded, the
respondent’s views on the main challenges of the
industrychangedcorrespondingly.Therespondents
interviewed during the month of August till mid
September were concerned about the lack of talent
in the industry while the respondents interviewed
by the end of September and during the month of
October were concerned about the overall impact
of the financial crisis.
Thesubprimecrisishasresultedinashiftoftalentpool
from US/Europe to the GCC. The credit crunch has
affected the GCC financial markets and the investor
behavior thereby creating limitations for banks and
presenting new challenges & opportunities to the
PE industry. The report emphasizes the prospects
and opportunities for the industry.
2.1Types of PE funds
Researchhighlightedthat64%respondentsfollowageneralist
strategy for investments while the remaining 36% adopt a
more sector specific approach. The PE investment strategy
is ‘event driven’ i.e. respondents of generalist funds feel that
if there is good impetus for them to get involved in subject
businesses, they capitalize on the opportunity irrespective
of the sector. The need for such involvement could be due
to various reasons: help business expand in another country,
help in acquisition, provide a different kind of banking facility,
or assist in structuring professional management and financial
expertise.
Creating a sector specific fund will enable the institution to
develop a certain expertise, specialization within the fund and
to identify its needs thereby servicing it more efficiently. Some
sector specific funds were also created since they represented
a niche in the UAE market.
Moreover, the industry is very new to the region and does not
have an established track record making PE firms cautious
in their approach through ‘opportunity driven investments’.
In future, most respondents believe that there will be more
sector specialization as well as geographic specialization as
the market matures and PE firms adopt competitive strategies
to garner a larger share of the investment pie.
“Being a generalist fund is going to be tougher. A generalist
fund works very well in an environment where the markets are
booming, because all the funds follow the markets and everyone
doeswell.Butnowspecializedfundsareexpectedtobecomemore
popular with people being aware of what they are going to invest
in, and fund managers using their industry expertise to be closely
involved with their portfolio companies,” Delta Partners.
GiventheatypicalstructureoftheUAEmarketcharacterizedby
numerous mature family businesses of different sizes, growth
capital funds are the type of funds which are best suited to
the needs of these businesses. 52% of the respondents said
that their company was operating growth capital funds.
10% of the respondents who had venture capital funds were
specialist in investing in new ventures (women led businesses,
innovative business concepts) and elicited a high degree of
risk-return investment strategy. 19% of the respondents who
operated buyout funds were obtaining minority stakes in
target investments.
Growth Capital
52%
Buyout
19%
Venture Capital
10%
Other*
19%
A dominating number of 'Growth Capital funds'
Other*: Project financing, Acquisition finance etc.

In 2008, majority (64%) of funds ranged between USD 100
million and USD 500 million and very few (7%) had funds
between USD 500 million and USD 1 billion.
However, by 2011 respondents have projected an increase in
fund size with augmented focus on funds ranging from USD
500 million to USD 1 billion. Number of respondents forecast
an increase from 7% in 2007 to 20% in 2011 for fund size of
USD 500-1 billion and number of funds greater than USD 1
billion would rise to 33% in 2011. The increase in overall fund
size is reflective of the optimism and maturity of the markets
in the medium-term.
Further, 50% of the respondents have forecasted a
consolidation in the PE sector. There are more than 63 firms
in UAE with a large corpus of funds; most of these funds are
not yet closed. Hence, there is high probability that most of
the small local firms might be bought out or get merged;
the ultimate scale of investments will determine the leaders.
The deals will get larger because of greater agglomeration of
capital with fewer firms.
Till date the GCC has been successful in raising USD 7.04 billion
which is 0.87% of its total GDP. This is very low as compared to
the matured markets of US and Europe where the PE fund by
GDP ratio ranges between 4 to 5%.
Some of the UAE PE firms with large funds (greater than USD 1
billion) based in GCC are as follows;
The top 10 global PE firms individually have raised more than
20 times the capital as compared to GCC firms;
2.2 Present and Future size of PE funds
Research reveals that as the PE market develops in UAE,
the average ticket size is likely to increase, to finance mega
projects. Presently, majority of the average investment sizes
are USD 40 million. By 2011, they are estimated to increase to
USD 70 million. Moreover few large PE firms have also stated
their ticket sizes to reach approximately USD 1 billion by 2011
(in certain cases).
In 2007, in the USA, there were 1700 PE firms. They managed
more than 3700 funds with an average fund size of USD 180
million (excluding the large funds setup by the top 10 PE
leading companies). On the other hand, in UAE the average
fund size ranges between USD 40 to 80 million for the 63 PE
firms in the region. As the market matures, PE firms in the
region will aim for larger buyout deals and hence the ticket
size is expected to increase in the short-medium term.
2.3 Average investment/ticket size
USD 20 mn
22%
USD 40 mn
22%
USD 60 mn
22%
USD 80 mn
17%
USD 100 mn
6%
Less than USD 20 mn
11%
Average ticket size is expected to increase
from USD 40 million...
…to more than USD 70 million by
2011
Source: Zawya
Source: Private Equity International
Note: Firms are ranked by amount of capital raised for direct private equity investment between 2001
and 2007
29%
64%
7%
13%
33%
20%
33%
< USD 100 mn USD 100-500 mn USD 500-1 bn > USD 1 bn
2008 (Present) 2011(Future)
A bulk average Fund size of USD 100-500 million…
…that will reach USD 1 billion in 3 years
PE house
Total Size
(USD billion)
Status
Dubai Islamic Bank 3.0 Fund Raising
Abraaj Capital 2.0 Investing
Ithmar Capital 1.0 Announced
Millenium Finance Corp. 1.0 Fund Raising
Origin
Capital raised
(USD billion)
The Carlyle Group Washington DC 52
Goldman Sachs Princ. Invest. Area New York 49.1
TPG Fort Worth 48.8
Kohlberg Kravis Roberts New York 40
CVC Capital partners London 36.9
Apollo Management New York 32.8
Bain Capital Boston 31.7
Permira London 25.4
Apax Partners London 25.2
The Blackstone Group New York 23.3
USD 20 mn
7%
USD 40 mn
31%
USD 80 mn
15%
USD 100 mn
31%
More than USD 100
mn
8%
Less than USD
20 mn
8%

2.5Target investment sectors
MostofthePEfirmscurrentlyhaveadiversifiedsectorportfolio
indicating a ‘generalist approach’. Their portfolio mainly
comprised the following recurrent sectors: Real Estate (15%),
Services (15%), Energy (13%), Retail/trading (11%), Education/
Healthcare (11%) and Infrastructure (9%). These sectors
are likely to continue to be a part of the future investment
strategy (Services: 20%, Real Estate: 16%, Manufacturing:
13%). However, in the coming years, sector specific funds are
likely to be more pronounced as compared to the present day
generalist/opportunistic funds. Presently specialist funds are
found in high performing sectors like Real Estate, Technology
Media & Telecom and Oil & Gas.
“The two major growth sectors are utilities and transport. The
growthinutilitieswillbedrivenbytremendousdemandforPower
and Water not just in the UAE but throughout the GCC as the
economies seek to expand their industrial base, whilst the growth
in transport reflects both an element of catch up to compensate
formanyyearsofunderinvestmentandtheincreasingmobilityof
the fast growing regional population”, ADIC.
“We are active in the consumer space. It is defensive yet continues
toseestronggrowthsupportedbyregionalpopulationdynamics”,
HBG Holdings.
PE investment breakdown by sector
Healthcare
11%
Infrastructure
9%
IT
2%
Manufacturing
7%
Oil, Gas & Energy
13%
Real Estate
14%
Retail &
Trading
11%
Services*
15%
Telecom
9%
Transport
4%
Other*
5%
*Other: Construction, Utilities, Airlines, Logistics, etc
*Services: Financial services
Healthcare
10%
Infrastructure
10% IT
3%
Manufacturing
13%
Oil, Gas &
Energy
10%Real Estate
16%
Retail & Trading
7%
Services*
20%
Telecom
6%
Other*
6%
Real Estate, Services and Manufacturing
to be the priority investment sectors in the future
Other*: Utilities
Services*: Financial services, etc.
2.4Target investment country/region
Most UAE based PE firms are targeting investments within UAE
(22%) and the GCC region mainly KSA: 20%.
“Saudi Arabia is the most
powerful, dynamic, liquid
and viable market in the
GCC. If you are in KSA you are
already half way to being a
regional company. That is
why we are concentrating
our next acquisitions in Saudi
Arabia and using the launch
to go and buy in UAE, Kuwait,
Qatar or Bahrain”, Growth
Gate Capital.
By 2011, respondents have
envisaged UAE (20%) and
KSA (16%) to continue to
be the preferred investment destinations. The preference was
cited mainly due to the high-pace of economic growth in UAE
which is expected to continue on the back of infrastructure
investments and economy diversification initiatives in Dubai
andAbuDhabi.Further,theNorthernEmirateshavealsoshown
increased development activity in the form of advancement in
tourism destinations, free zones and industrial hubs.
The growing importance of KSA is primarily on account of
its large market size (largest in GCC), growing population,
economic diversification, availability of vast expanse of land
and the relative ease of doing business in the Kingdom.
From a broader point of view, KSA, India, UAE and Egypt
are the countries which are likely to receive maximum PE
investments from UAE. In 3 years, UAE is likely to receive 20%
of the investments of the PE industry, while KSA, Levant and
India will receive 16% each.
“Algeria and Libya have been a closed economy for a long time
and are now opening up to foreign investment. The legal and
operational challenges to do business in countries like Libya and
Algeria remain significant and PE firms that are able to navigate
those efficiently will develop a strong competitive advantage”,
EFG Hermes.
Egypt
16%
Europe
4%
India
7%
Levant
9%
Morocco, Tunisia,
Libya
11%
Rest of the GCC
11%
SaudiArabia
20%
United Arab Emirates
22%
Current PE country targets: UAE,
KSA and Egypt
UAE and KSA will continue to be the
preferred investment destinations along
with India by 2011
Africa
7%
Egypt
10%
Europe
3%
India
16%
Levant
16%
Morocco, Tunisia,
Libya
3%
Rest of the GCC
10%SaudiArabia
16%
United Arab Emirates
19%

2.6 PE Investment Opportunities
Sector Focus
GCC
KSA Qatar UAE
Construction
Labour camps
and residential
properties
Residential
properties
and luxury
accommodation
Residential
properties and luxury
accommodation
Consumer
Goods
Retail outlets for
consumer goods
Retail
developments
Retail developments
Education
Private education in
the form of schools
and colleges
Universities and
campus
Energy
Electricity
generation
LNG exploration
and distribution
GTL distribution
Upstream
petrochemicals
exploration and
production
Electricity generation
Services
Development of
the financial sector
(health insurance)
Logistics and financial
services
Food and Retail
Health Hospitals Healthcare services
ICT
E-commerce
development
E-commerce
development
Infrastructure Railway projects
Road building
programme
Contracting firms and
supplier of machinery
and equipment
Manufacturing
Industrial Base
(metals, food
processing)
Industrial Base
(metals)
Tourism
Resorts and cultural
sites
Utilities
Water and power
projects
Independent
Water and Power
Production
(IWPP) projects
Water and power
projects
The table summarizes potential sectors
for PE investment in select countries as
recurrently mentioned during the study.
The opportunities represent different
sectors within the MENA region as
potential target countries by the UAE PE
firms.
Source: D&B, ANIMA, UNCTAD and CIA

Sector Focus
North Africa Levant
Algeria Libya Morocco Tunisia Egypt Jordan Lebanon
Construction
Residential
properties
Residential prop-
erties
New man
made cities
Manufactur-
ing building
materials
Tourism and
commercial
properties
Consumer
Goods
Education
Schools and
professional
colleges
Energy
“Upstream
- Oil ex-
ploration”
“Upstream
- Oil exploration
Power projects”
Power
projects
“Upstream
- Oil explora-
tion
Downstream
- refining”
Mining
projects
Services
Development
of the services
sector
Develop-
ment of the
financial
sector
Food and Retail
Agriculture
and Agro
food pro-
cessing
Agriculture
produce de-
velopment
Food process-
ing and can-
ning industry
Food manu-
facturing and
processing
Agro food
processing
Health
Healthcare
services
“Pharmaceutical
manufacturing
Healthcare ser-
vices”
Pharmaceuti-
cal manufac-
turing
Pharmaceuti-
cal manufac-
turing
ICT
Software
develop-
ment, back
office ser-
vices, call
centers
Infrastructure
Transport
infrastruc-
ture
Transport
infrastructure
“Transport
infrastruc-
ture
- road net-
work”
“Civil aviation
- rehabilita-
tion, devel-
opment and
upgrading of
the country’s
airport plat-
forms”
“Transport
infrastructure
- railways”
Manufacturing
Textiles and
clothing
Chemicals,
Textiles, Met-
als
Textile and
clothing indus-
try
Furniture,
Jewellery
and gar-
ments
Tourism
“Desert land-
scapes
Cultural heritage
sites”
Tourism
locales
Tourism
locales
Tourism
locales
Utilities
Hydraulics
related
projects
Water projects
Water proj-
ects
The table represents the opportunities as cited by PE firms. Utilities and Consumer Durables sector appear to be the favorite
sectors/areas and are concurrently occurring across all the countries.
Source: D&B, ANIMA, UNCTAD and CIA

2.7Target IRRs
Research shows that the average annual IRRs range from 20-
30% for UAE PE firms.
ThePEindustryhasdiversifiedfromtherealestatesectorwhich
had high IRRs to targeting Infrastructure and Energy sectors
which have relatively lower IRRs. Most of the respondents
investing in Energy, Infrastructure and Utilities expressed that
mega projects announced by the government, with longer
gestation periods lower the IRRs; however the returns will be
more secure in the long term. In 2008, the average holding
period ranged from 5 to 7 years and most of the funds are
still in their holding period given the relative newness of the
funds/investments.
The global financial crisis is likely to prolong gestation periods
for PE firms. This is because the route of exit through IPOs
looks difficult in the short-term due to depressed stock market
conditions. This has a knock-on effect in lowering the target
IRRs. However, respondents continue to maintain a stable
or even higher target IRRs inspite of the recent events. This
is mainly because of opportunities to partner with family
businesses and exiting through trade sales.
In 2007, the average annual IRRs in USA were 12.3% while
in Europe it was 11.6%. The IRRs of the GCC region are twice
that of its global peers, partly explained by the risk premium
attached to regional markets. However, the wide gap in IRRs
between US /Europe and that in GCC would imply that there
exists potential for foreign PE firms to enter the region.
12%
41%29%
12%
6%
< 20% 20-25% 25-30% 30-35% >40%
IRRs target of 20% - 25% in 2008
2.8 Exit Route
Though several respondents mentioned a lack of developed
financial markets, IPOs remain the preferred exit route as seen
in the pie-chart wherein 56% respondents have highlighted
preference of using IPOs followed by trade sales (25%). The
preference for IPOs is on account of easy regulations by the
financial market regulatory authority and access to the stock
markets.
Trade sales are the second common route which enable exit
withoutcompulsoryfinancialdisclosurefavoredbyestablished
family businesses.
Given the nature of PE industry in the region, secondary sale
is not the most popular exit route; however it is projected
to be more frequently used in the near term by most of the
respondents as consolidation sets into the industry.
Less than 2% of the total funds invested in the MENA region
have been exited and hence the pie-chart represents the
estimates of the preferred route of exit. Further, many funds
which have been exited from have either not been publicly
reported or have been negotiated trade deals.
In the light of current events: high stock-market volatility and
relatively poor performance of the regional stock markets
on the back of real estate price meltdown speculation, many
regionalfirmshavedelayedtheirIPOplans,effectivelyblocking
private equity's exit plans.
“Historically, IPO’s have provided very lucrative exits for investors
and have accounted for most of the exits in the region. However,
onehastobewaryofoverrelianceonIPO’sasanexitmechanism,
especially in emerging markets. Going forward, changes in laws
around foreign ownership levels will increase M&A activity with
international trade buyers, and sales to other regional financial
buyers will continue to grow”, The National Investor (TNI).
IPO
56%
Cannot comment
13%
Trade Sale
25%
Other*
6%
IPOs: estimated to be the preferred
Exit route
Other*: Secondary sales

Buyout is usually the most common strategy for PE funds to
invest in any business.
However, the buyouts are more of a ‘strategic minority’ rather
than a‘complete buyout’. D&B research shows that 66% of the
respondents use strategic minority as the investment strategy
as compared to controlling buyouts (27%) or LBOs (7%). This
is mainly due to family businesses which do not prefer to give
up all their management control to external shareholders.
The businesses in the GCC / MENA region are cash-rich and
generally do not look for PE firms to invest as a source of cash
but rather as a rich source of industry know-how and expertise.
As a result most of the PE firms adopt the strategic minority
strategy.
“Often family businesses want to expand through cross-border
acquisitions but do not have the requisite expertise and therefore
need a private equity partner,” HBG Holdings.
LowdebtlevelsintheregiondonotconsentPEfirmstooperate
any LBO deals. Even if such deals are executed, the level of
debt does not increase beyond 50%. Equity participation is the
most preferred investment strategy among PE firms in UAE.
Research shows
that most of the
investments are equity
investments in GCC
with not more than
50% usage of debt. In
US, Europe and Asia
the investment trend
has a debt to equity
of 2:1 times, whereas
in GCC, debt to equity
ratio is generally 0.5:1
times. The low debt in
the region has helped
the home-grown PE
firms sustain inspite of
the global financial crisis.
“Until now the regional PE industry has been primarily driven
by growth capital and growth investments. I think that the next
phase is going to see more ‘transition capital’ requirements
driving the PE activity. Family businesses that are reaching the
succession phase, where the next generation would want to
exit the business or monetize part of its investment to diversify
its economic holdings is a good example of such transition
capital requirement. There are also large conglomerates in the
region that have historically grown out of their core business to
cover an increasing number of business lines during the growth
stage of their respective markets. With these markets maturing,
competition will increase in each of those business lines and the
conglomerates may need to refocus their strategy by divesting
someoftheirsubscalebusinessestoremaincompetitive.Therewill
be consolidation and restructuring and these represent attractive
buyout opportunities for the PE industry”, EFG Hermes.
However, the trend is changing as the new generation of
family business owners are more willing to share their stakes
and allow private equity players to guide their business in
areas of restructuring, expansion, M&A and internal-dispute
issues. The PE firms help channelize the necessary know-how
and expertise along with equity to the companies.
“The 3rd generation
family businesses are
found to have the least
chance of succeeding
and that is where firms
can start losing focus,
some grand sons will
start entering in ventures
that the father would
never have entered into,
leading to disagreements
betweenfamilymembers.
And that is potentially
where the market
switches to ‘control buy-
outs’ versus ‘minority
investing”, Shuaa Capital.
PE firms in UAE also prefer to focus on established companies
with high growth potential rather than start-up firms.
To diversify their risks they adopt sector and geography
diversification strategies. A few seed capital oriented PE firms
invest in new business ideas after thorough due diligence.
40% of PE respondents believe that in the coming years, as
the market matures, the PE industry will see more controlling
buyouts with family businesses willing to sell majority stakes
in some of their large network of businesses to PE firms.
Leveraged buyouts will still be scarce and Islamic funds will
gain popularity.
“The growth of Islamic finance is one of the biggest stories over
the last 5 years. There are private equity investors in the region
who will only invest in Sharia’h compliant funds and this trend is
likely to continue into the future”, HBG Holdings.
2.9 Investment strategy
LBO
6%
Controlling buyouts
27%
Strategic minority
67%
Pursuant to Growth Capital Funds a Strategic
Minority strategy is used...
LBO
10%
MBO
10%
Other*
11%
Controlling buyouts
40%
Strategic minority
30%
…as the PE market matures in 3 years we
will see more controlling buyouts

2.10 UAE Business Environment – Potential for PE Industry
Followingthesurveys’insights,thefollowingtablesummarizes
the opportunities and challenges for PE firms and their
requirements to service the opportunities in the current
scenario in UAE.The survey highlights the growth of PE in UAE.
It helps to identify the nature of the industry in UAE which is
complemented by the characteristics of the region.
The business environment of the country makes it very
congenial for PE firms to thrive by sourcing HNI funds and
deploying them in the progressive sectors of the economy.
The table represents the potential of UAE as a prospective PE
target as well as a hub.
The favorable business environment adds to the overall attractiveness of the country as a PE base. Growth opportunities in
the economy and availability of skilled professionals contribute actively to overall moderate optimism for the PE industry in
the UAE. This optimism is reflected in the chart“PE industry optimism for the period 2008-2011”of the study described later
in the report.
Note: The indicators are based on D&B assessment of the business conditions and their impact on development of PE industry. The indicators outline those parameters
which are strong and favoring PE growth in UAE versus other parameters that are less favorable (as per the scale given above)
Source: D&B, UNCTAD
INDICATORS
The indicators represent
the relative intensity of the
parameters on PE growth.
Very High Impact
Medium Impact
High Impact
Low Impact
Very Low/Negligible
Impact
NA - Not Applicable
UAE Business environment
on PE growth
Prospects for the industry
Family businesses
Need to Restructure
sectors
sales) represented 27.7% of total revenues in 2007. Further, investments in real estate,
process.
Private Sector
Development
USD 1,740 million and M&A purchases were: USD 16,689 million. The growth in M&A
Sharia’h Compliant Islamic
Finance
Source for the industry
Pool of liquidity available
High oil revenues have contributed to an enhanced pool of liquidity in excess of USD 542
billion in the GCC (2002-2006). However, the oil prices have fallen in the current wake of
events causing concern on overall oil revenues of the region
Requirements for the PE
industry
Pool of capital
Though liquidity is high in the region, the recent global economic turmoil has made
investors apprehensive to invest and they prefer to hold on cash.
knowledge
Research showed that during August – September availability of skilled professionals was
professionals from the USA and European markets. However, the funds rely on extensive
Comprehensive
corporate/industry
research
Intermediaries network
The PE industry is dominated by industry and key investor’s networks. Hence, the PE
Legal framework
Local stock markets
Sales to strategic buyers NA
not available publicly.

3. UAE Private Equity Outlook
3.1 Challenges to the growth of the PE industry in UAE
Though the financial crisis has not had the same impact in the
UAE PE market as in the USA, some respondents mentioned
that the crisis has altered investor behavior and is likely to
create a situation leading to consolidation within the industry.
However, recent moves by the government to guarantee
deposits have increased confidence in the banking system
overall.
A slow down in the investment cycle - Historically PE
funds have invested from their balance sheet. In the GCC,
the homegrown PE firms have been off-shoots of large
investment houses or conglomerate businesses. Moreover,
high liquidity in the region has led to the growth of
foreign PE firms seeking investor funding. On one side the
numerous PE houses are sourcing funds and on the other
side uncertainty in the global and regional stock markets
during October 2008 amidst gripping fears of global
recession and dropping crude oil prices has increased
investor apprehension of making any investments.
Investors prefer to retain liquid cash thereby prolonging
the fund raising for most of the PE firms.
Research highlights that to counter the extended fund
raising activity PE firms have resorted to ‘second closings’,
a more pragmatic way of spreading fund raising. If a fund
raisingfirm announces ithas reachedfirstor secondclosing
it may mean that it is still seeking further investments.
While fund raising, a firm will announce a first closing to
release the money rose so far so that it can start investing.
The usual number of closings for a fund is about three and
between each closing there will be a re-valuation of the
portfolio. Only when a firm announces a final closing it is
no longer open to new investors.
“Typically it will take you between 6 to 9 months to raise funds,
given the current market environment this could slip to 12 to
even 18 months,” Delta partners.
A mismatch between liquidity and quality of deals
available - Though the region has abundance of liquidity
there are not enough opportunities to invest the surplus.
Delayed privatization initiatives of the Government
and limited opportunities in the family owned private
sector have made deal sourcing difficult. The key factors
for success in the region rely on proprietary access and
extensive business networks. However, regional dynamics
have not allowed intermediaries to play a significant role
in maturing deal flow, and hence made the deal sourcing
process a competitive edge for some and frustrating issue
for others.
Further, most of the PE firms in UAE invest in established
companies which have a huge potential to grow and prefer
to avoid new ventures (unless they complete a thorough
due diligence on new ventures), making deal sourcing
more difficult. Moreover, established family businesses are
apprehensive to obtain PE funding.
“The challenge will continue to be the ability to find high quality
deals. Valuations have come down, but the concern of fund
managers is to invest in high quality companies with strong
potential rather than just cheap companies”, Delta Partners.
A drop in valuations - GCC indices have on average lost 10
to 12% in October 2008 alone and 24.8% during the period
of January 2007 to January 2008 weakening investor
confidence. This is likely to impact the quantity of initial
public offerings (IPOs) being launched in the region in
the short term. On the other hand, lower valuations may
attract PE firms to invest extensively in the region.
Anetworkbasedindustry-The PE industry is a relationship
driven market and successful firms so far have been those
with good relationships with partners, investors and target
companies.
“The problem with family owned businesses wouldn’t be the
percentage of ownership or the day to day management it would
be the strategy for the future”, Growth Gate Capital.
“One of the main challenges is the fact that businesses are
mostly family owned and families are very reluctant to sell. The
mentality isn’t an exit mentality even if it isn’t a core business,
it is more of acquire and grow mentality”, Al Futtaim Capital.
Lack of awareness of PE - Several respondents mentioned
lack of PE education especially for the‘media and business
world’which seems to be partly bridged over by the flow of
talent coming in from the USA and UK markets.
3%
Global economic
slowdown
28%
Lack of developed
26%
5%
Lack of talent to
supportthe growth
15%
Oil price drop
5% Possibility of
turmoil
8%
Other*
11%
PE industry in UAE is not completely
invulnerable to the credit crunch
*Other: Lack of high quality deals, Lack of track
record for the PE industry, Lack of PE eductation

UAE and the GCC overall are dominated by large number of
family businesses. Hence, generation succession presents
opportunities for PE. 39% of the respondents have highlighted
the large opportunity presented by family owned businesses
followed by pre-IPO players and privatization initiatives of the
Government.
Family businesses - Most of the family businesses are
originally built on an exclusive agency arrangement
for products manufactured elsewhere. With greater
intermediation between buyers and sellers of the world
as a result of extension of GCC into the WTO trade
agreements, the family businesses have realized that they
could become distribution platforms and not just agency
shops, selling more than one product on a non-exclusive
basis. This is the most critical change in the landscape of
the GCC economies pushing family businesses to think out
of the box and seek private equity participation.
“80%ofthebusinessesareownedbyfamiliesandtheacceptance
of PE partners by these families is increasing”, Gulf capital.
Private sector developments - Some of the UAE Emirates
such as the Emirate of Abu Dhabi have plans for economic
restructuring with the aim of augmenting the socio-
economic role of the private sector. Privatization is crucial
for economic liberalization, pushing efficiency and
redistribution of wealth, providing quality and competent
public services, introducing new departments and
upgradingtechnology.Itisestimatedthatthegovernments
oftheGCCareplanningextensiveprivatizationprogrammes
for the next decade. Private sector development initiatives
present tremendous opportunities for PE players. The
UAE is allowing greater foreign participation and the
development of its non-oil sectors will provide greater PE
funding opportunities.
Global financial turmoil - With the slower rate of closing
deals in the USA and in Europe, the global PE industry will
increasingly target the GCC / MENA region. The financial
turmoil may also bring a wide pool of financial talent from
the USA and Europe to the UAE.
“Prior to the turmoil, we were seeing acquisition finance that was
leading to enhanced returns. However, credit has virtually dried
up now, and investors will be forced to work harder to see the
same level of returns”, TNI
Public Private Partnerships - The focus on building
utilities, power plants, transportation facilities (ports,
airports), water plants, buildings etc. will continue to form
a key element of economic development. Most of these
projects are Government privatization initiatives or capital
seeking initiatives in Infrastructure, Health, Education,
Transportation, Energy, Financial services and Water
projects.
“On a macro level there is significant consolidation play in the
region which will unfold in the coming years and private equity
will play its role in facilitating this shift”, HBG Holdings.
Large scale M&A activity and consolidation trend will
provide more prospects for the industry - The region is
witnessing tremendous M&A activity in terms of cross-
border sales and purchases. Further the Financial Services
sector in the region is also consolidating. All these events
are providing opportunities for PE firms to participate as
knowledge and funding partners in the M&A process.
Geographic focus: The large opportunities presented by
UAE are representative of the potential of its two emirates:
Dubai and Abu Dhabi as a PE source as well as destination.
TheboomofPEindustryinDubaihasbeennoteworthy,but
Abu Dhabi’s progress as a potential source of HNWI funds
is equally impressive. The following extract highlights the
potential presented by Abu Dhabi as a PE source as well as
destination.
3.2 Major opportunities for growth of the PE industry
23%
Family businesses
40%
Pre IPO players
20%
3%
fundamentals
3%
development
3% Other*
9%
Family businesses are still playing a
dominant role

PE Perspective - Abu Dhabi
Macroeconomic overview
Only 34% of Abu Dhabi is inhabited with the remaining
vast expanses covered mainly by desert and arid land
providing opportunities for Greenfield development. The
emirate’s population increased by 4% in 2007 reaching
1.49 million and is expected to reach 1.75 million by the
end of 2010.The GDP per capita of this emirate USD 71,200
in 2007 is one of the highest in the world and well above
United States (USD 45,800) and Japan (USD 33,000) for the
same year. Compared to 2006, the non oil sector increased
its share in Abu Dhabi’s economy in 2007 reaching 41% of
AbuDhabi’stotalGDP.Thecontributionofthenonoilsector
in the total GDP of Abu Dhabi is forecasted to increase and
reach 60% by 2025.
The strong fundamentals of the region combined with
excess liquidity through previously high oil prices are likely
to create tremendous opportunities for investments as
well as fund managers alike. The following table presents
the opportunities the Emirate brings for PE firms.
Abu Dhabi - opportunities & challenges for PE
Research has revealed the following key sectors which will drive growth and investments in the region in the near term.
Abu Dhabi Sector Opportunities: Fundamental & Potential sectors
Thus, Abu Dhabi presents prospective opportunities for the PE industry to gather investible surplus and distribute it amongst
the various progressive growth initiatives of the government and deeply rooted family businesses at large.
Macro Economic
Outlook
Description Opportunities Challenges
Government
Initiatives
• Relative low cost of doing business
• Special economic zones offer 100% tax
exemptions
• 100% Repatriation of Profit & Capital
• Transparent Government Services
• Open door policy, liberal economy and
reform programs
• Privatization plans and bigger role allocated to the
private sector
• Series of bilateral agreements with foreign countries
are being negotiated
• Restructuring plans to increase public-private
partnerships.
• Sector diversification
Stable and strong macro-economic environment will
encourage flow of PE capital.
• Interaction needs to be encouraged between
the private and public sectors via economic
planning
• Transparency
• Labor laws
• Sponsorship system
High Liquidity
• Previously high oil prices
• Diversified economy
• Network of HNI investors
• The SWFs are already active in large scale
investments
These will provide opportunities for PE firms in the
form of VC, seed capital, expansion finance, acquisition
finance and Islamic funds
• Sharp Drop in oil prices may impact liquidity
Favorable
Demographics &
Infrastructure
• Proximity to growth regions - Africa, Asia
and Europe
• Heavy investment in infrastructure
• More than USD 136 billion projects are underway
• Opportunities in the consumer durables, utilities,
transport and logistics sectors
These will make available sectors for investments
• Abu Dhabi’s economy still depends heavily
on the oil sector
Fundamental sectors Potential sectors
Oil
Oil is part of Abu Dhabi’s most important local resources with opportunities in the
upstream and downstream ventures.
Tourism
The creation of the Abu Dhabi Tourism Authority (ADTA) will drive demand for
infrastructure development
Infrastructure
Both high population growth as well as high pool of liquidity available increases demand
in transport, water and power generation facilities
Industry
The Abu Dhabi’s diversification policy will push the development of petrochemicals, iron
and aluminum.
Trade
The liberalization of Abu Dhabi’s economy will expand trade relations with rest of the
world.
Financial services
Abu Dhabi’s new regulations and the improvement of its business environment will
enable it to be a financial powerhouse in the Middle East
Abu Dhabi real GDP estimates (USD billion)
Source: DPE
2010-2025*: estimates
46 61 66
85
135 12032
44
54
85
95
180
2005 2008 2010* 2015* 2020* 2025*
Non oil sector GDP Oil sector GDP
5 year CAGR Non Oil
sector of 54%

Sector Focus:
Respondents have cited water along with the power sector
to be an emerging PE target for investments. The following
abstract on the Water industry studies the various dimensions
of the industry and assesses the future prospects for the sector
from a PE perspective. D&B has given a brief snapshot of the
Water Industry as a potential sector for PE investments in the
region.The industry profile is an extract of D&B research and is
provided as an overall outline of opportunity in the sector.
Power and water projects are the backbone of any industrial or
infrastructuredevelopmentwhichdeterminessustainabilityof
business and habitat in the region. The Arabian Gulf, a desert
and arid land lacking permanent surface water resources has
heavily relied on desalination of water for its consumption
requirements.
Water is the most scarce commodity in the GCC, with the
water availability per person at 1,200 m3 compared to a global
average of 7,000 m3. Hence the emergence of desalination
plants in the region on account of: rising demand for water
and lack of natural supply sources, rising marginal cost of
expanding water supply makes it too difficult to reach areas
and easy availability of desalination technology.
PE perspective - Water Industry
The large scale investments in the water sector in the region
are a result of the strategic initiatives of the government to
increase water capacity in the region. The threat of water
scarcity has ensured investment in water projects is a priority
in the region.
D&B has conducted an extensive research on the water
industry in Dubai to estimate the total demand for portable
water through 2008 and 2010. Requirement has been
calculated on the basis of major sectors (construction and
labor camps) which constitute 90-95% of the total water
demand. Additional capacity required by 2010 to cater to
the water demand in Dubai is estimated to be 4537 million
imperial gallons per year.
In light of the development of the Water sector and
opportunities for investments in mega projects, PE firms are
likely to gain from the initiatives in the medium-long term.
Fundamental sectors Potential sectors
Large-scale infrastructure
projects in the region
•The expenditure on infrastructure projects is stated to exceed USD 360 million
by the end of 2008.
•Utilities (IWPP) top the list of projects with USD 120 billion to be invested over
the next decade
•Desalination capacity across the Middle East will have to double by 2015 to
meet demand
• Global economic slowdown might
delay projects in the region, effecting
IRRs and elongating gestation periods
•Complexity of the Public-Private
partnership
Privatization on the anvil
•Most of the water desalination plants are government owned and likely
privatization of the plants presents opportunities for investment
•Private sector companies are now able to construct power generation and
water desalination facilities in the UAE
•Delayed privatization plans of the
government

3.3 Leading financial centre in the MENA region
Dubai is seen as the center of private equity in the GCC. Abu
Dhabi & Riyadh according to their economic and demographic
profiles and business development activities are estimated to
be the upcoming PE centers. Qatar which is developing and
advertising its financial center is named by respondents but
appears to have one generation lag compared to its peers.
90% of the respondents have ranked Dubai as their preferred
destination followed by Abu Dhabi and Riyadh.
“Financial centers are built around talent and human capital”,
EFG Hermes.
The DIFC is recognized as the regional financial hub but other
cities are also working hard to create similar platforms. Dubai
has already grabbed the first mover advantage by being the
world class centre for global talent pool. Most of the global
players have already set-up offices/ Regional head offices in
Dubai and more then 90% of the PE meetings, conferences
and investment related regional and international events are
held at DIFC.
Interestingly, Abu Dhabi has been mentioned by several
respondents in the study as being one of the future financial
centers in the GCC. Abu Dhabi contributes 44% of UAE’s GDP
and represents 31% of its population. Abu Dhabi is attempting
actively to diversify its economy through investments in the
financial and tourism sector. All these factors make it an
attractive target for PE as well as a rich source of funds for PE
activity.
“Abu Dhabi is definitely to be watched very seriously and they are
impressive, they are really doing the right things now. Abu Dhabi
is learning from Dubai’s shortcomings concerning infrastructure
and planning”, Al Futtaim Capital.
Abu Dhabi
19%
Bahrain
7%
Dubai
34%
Qatar
20%
Riyadh
20%
Dubai in PE, has the 1st mover advantage
amongst its peers
3.4 PE Industry Optimism 2008 – 2011
59%ofthetotalrespondentsareoptimisticabouttheprospects
for PE industry in the coming years with respect to increase in
average fund size and greater investments. However, 7% who
were definitely less optimistic highlighted concerns: investor
apprehension, low levels of liquidity available in the banking
sector, stock market volatility impacting exit routes, among
few others.
“Currently everyone is hanging on to their cash as in the short
term; people just want to see what will happen with the markets.
This can be expected to change in the new year. Yet this will
depend on how quickly or slowly financial markets will stabilize,”
Delta partners.
The optimism for the industry stems from continued
investments being made by the government in economic
diversification on the back of strong oil revenues. Even with
oil prices dropping over the last 3 months, the medium-long
term outlook on GCC oil revenues is positive. Further, the
economic development programmes are now seen as being
less dependent on oil prices. In fact, most of the oil economies
make their budget with a USD 45-50 per barrel assumption.
Further it should be noted that US / European industries are
more reliant on debt, whereas in GCC, equity still emerges as
the primary source of funding. As a result the PE sector in GCC
has been relatively secure from debt burdens as compared
to its US or European peers. It is also important to note that
the GCC markets do not have any correlation with other asset
classes or the developed markets making them less immune
to the financial crisis faced by the world.
More than 66% of the respondents have projected growth
of the industry (in terms of fund size) by more than 20% by
2011. Only 17% have projected a decline. The growth in fund
size is on the back of a resilient economy fostering growth
of businesses which require external expertise (cash and
knowledge resources) to manage their growth plans.
59%
Somewhat more
27%
Somewhat less
6%
7%
PE Industry optimism for the period
2008-2011

About Dun & Bradstreet
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been enabling companies to Decide with Confidence™ for 165 years. D&B’s global commercial database contains more than
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Dun & Bradstreet South Asia Middle East
Dubai International Financial Centre,
PO Box 506511, Dubai, UAE.
Tel: + 971 4 3695700
Email: ras@dnbsame.com
www.dnbsame.com
Other Offices: D&B operates in the region through its offices in Dubai, Mumbai, Abu Dhabi, Bahrain and Cairo.
Disclaimer:The information contained in this report is of a general nature and is not intended to address the circumstances of any particular individual or entity.
All information contained herein is obtained by D&B from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure
that the information herein is true, such information is provided ‘as is’ without any warranty of any kind and D&B, in particular, makes no representation or
warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely
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Contacts:
Pawan Bindal Pooja Rami Alienor Baudesson
Associate Director Consultant Business Analyst
Dubai International Financial Centre, Dubai International Financial Centre, Dubai International Financial Centre,
PO Box 506511, Dubai, UAE. PO Box 506511, Dubai, UAE. PO Box 506511, Dubai, UAE.
Tel: + 971 4 3695700 Tel: + 971 4 3695700 Tel: + 971 4 3695700
Mobile: +971 50 2803900
Email: bindalp@dnbsame.com Email: ramip@dnbsame.com Email: baudessona@dnbsame.com

DnB PE Report_17122008

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