Private equity and venture capital deal value in the Middle East and North Africa edged higher in the second quarter to $5.23 billion from $5.12 billion in the same period in 2022.

The number of transactions slipped to 62 from 92 deals year over year, according to S&P Global Market Intelligence data.

In the first half, deal value slipped to $7.58 billion from $9.31 billion a year earlier, and transaction volume declined to 125 from 234 on an annual basis.

For the year to Aug. 25, aggregate transaction value stood at $8.18 billion, on track to fall short of the $14.47 billion recorded in full year 2022.

Sovereign wealth fund investors

The region has benefited from the recent increase in oil prices, which funded fiscal surpluses and grew the capital of sovereign wealth funds (SWF), according to Preqin.

“Middle East SWFs vary in their deployment of capital into the region. Their mandates can be more or less to deliver return for intergenerational wealth transfer, as well as more local investment in economic development,” Alex Murray, vice president and head of real assets with Preqin’s Research Insights, said in an email.

Saudi Arabia’s Public Investment Fund focuses on economic development as part of the country’s plan to reduce its reliance on the oil industry. Preqin data shows 35% of its direct private equity deals are in the Middle East.

Abu Dhabi Investment Authority, the United Arab Emirates’ SWF, is more active in North America and Europe.

Financial, tech companies get chunk of capital

Financial companies have received the biggest share of private equity-backed investments thus far in 2023, at $3.28 billion. Companies in the technology, media and telecommunications (TMT) sector followed, with $1.50 billion.

In terms of deal volume, the TMT sector booked the highest for the year, with 86 transactions as of Aug. 25. The healthcare and financial sectors came next, with 22 and 13 deals, respectively.

Top deals

For the biggest private equity transaction in the region so far in 2023, Francisco Partners Management LP and CVC Capital Partners Ltd. made a nonbinding proposal in April to acquire UAE-based digital payment solutions provider Network International Holdings PLC for 387 pence per share in cash. Market Intelligence data shows transaction value was about $2.91 billion.

Tamdeen Investment Co. KSCP’s purchase of a 52% stake in Tamdeen Real Estate Co. KPSC came in second, with $987.2 million in transaction value.

– Download a spreadsheet with data featured in this story. – Read about private equity investment in movie and entertainment companies. – Explore more private equity coverage.

The UAE scored the region’s largest private equity investment in the covered period, with $3.93 billion as of Aug. 25, driven by Network International’s proposed buyout. Israel recorded the highest number of deals in the region with 88 transactions.

Market outlook

Preqin expects the financial services sector in the Middle East to get more attention from private equity firms as it becomes an important part of the region’s economic development. Financials, as well as AI, are actively supported by governmental authorities.

“The software sector has been particularly active in recent years. One particular subsector to have been designated as strategically important by authorities, and attracting capital, includes artificial intelligence,” Murray said.

Pan-African private equity firm Adenia Partners Ltd. said the healthcare sector in North Africa is expected to receive more investment as a response to the growing population.

“The boom in demographics is actually putting pressure on the governments in North Africa to provide health services to their population. The public sector cannot do it alone. And so [investments are] happening more and more,” Adenia Managing Partner Stéphane Bacquaert told Market Intelligence in an interview.

Across North Africa, Morocco is the country poised to receive a bigger share of investment given its relatively stable economy. Egypt needs to address high interest rates and currency devaluation first before investors return.

“We need to see the interest rate and bond rate of Egypt to go down. As soon as the situation returns back to normal, Egypt will quickly become the number one geography for investment in North Africa,” Bacquaert said.

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