News Column

Healthy stock market to support region's PE and VC industry

July 15, 2014

Babu Das Augustine Banking Editor

Dubai: Revival in stock market, particularly in the initial public offerings (IPOs) will be supportive of the private equity and venture capital industry. Tremendous liquidity in the Middle East region is also expected to support the growth prospects of the industry, says Dr. Helmut M. Schuehsler, Chairman and CEO, TVM Capital Healthcare Partners Limited. TVM Capital Healthcare Partners is part of TVM Capital Group, an affiliation of globally acting venture capital and private equity firms with an operating track record of 30 years. Dr Schuehsler spoke to Gulf News on the current trends in the Middle East PE and VC industry.

With a number of PE funds in the region nearing the end of their lifecycles they are clearly facing exit pressure from Limited Partners (LPs). Do you expect to see the pace of exits to increase this year?

If the capital markets continue their positive development, I expect more exits through IPOs in Dubai and Abu Dhabi. Failing an IPO market, I do not see how pressure from LPs will increase the rate of exits, unless investors want to jeopardize their returns. Companies do not get sold, they get bought, and the timing has to be right for selling a company. Fund life times do not always reflect the true time it takes to build great companies or take them "to the next level", as is often the strategy of a PE investor.

Despite the clear improvement in regional stock markets, the IPO issuance is yet to pick up pace. Is this worrying for the PE industry as many PE players are waiting for an opportune time to exit some of their investments?

Yes, a healthy IPO market is usually the sign of a vibrant PE and VC industry. I would welcome this development very much, it would benefit us all.

Due to the very nature of the industry, PE investments in the region remain unannounced or are under reported. In many cases the valuation and mode of financing remains opaque. Going forward is there any scope for bringing about more transparency in the industry?

This is really what Mena Private Equity Association is trying to achieve, in much the same way as European Venture Capital Association has achieved much more transparency in Europe. It is a painful process, though, as many firms are extremely hesitant to share confidential information with an association. I do believe, though, that it would benefit all players in the industry to provide data to the association. Good statistics are the necessary underpinning of a regional strategy to attract capital from other parts of the world. Information is key for Limited Partners in our industry.

Evidence suggest that there is a significant overall increase in liquidity in the region does this mean the region is ready for leveraged buyouts (LBOs)?

There is tremendous liquidity in the region, but the number of large LBOs one can do is limited, simply because there is a limited number of large companies to buy, and a lack of even larger companies to sell to. But the cycle of buying and selling is the core determinant of success of the PE industry. So I think the activity will be largely focused on the so-called mid-market buy-outs, which is really the back bone of any economy worldwide anyway, the many family owned businesses, or medium sized public companies.. There is enough to do in this space.

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Source: Gulf News (United Arab Emirates)

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