The Saudi Arabia-based private equity firm Amwal Al Khaleej could deploy as much as 500 million Saudi riyals on deals this year, its chief executive said.
Amwal Al Khaleej hopes to agree on two deals this year and two exits, said Fadi Arbid.
The firm is focused on Saudi Arabia, the Arab world’s biggest economy and the world’s biggest oil exporter.
While there is investor appetite for deals, the biggest challenge for the private equity industry, particularly in Saudi Arabia, is valuation expectation, said Mr Arbid. This is taking place against a background of slower growth and declining oil prices.
“Price-to-earnings ratios are even higher than last year in Saudi Arabia, with lower growth expected, which is irrational. It makes the pricing of any private company also quite expensive because people keep a big eye, when they want to sell part of the business, on public equity pricing,” said Mr Arbid. “In this current pricing of capital markets and even private equity transactions we are seeing crazy multiples of 15, 16 times earnings. Around us people are paying for private-equity deals, sometimes at premium to public markets, which is unheard of.”
Nevertheless, the company is scouting for deals in food, health care, manufacturing and retail, which are defensive counter-cyclical sectors that do not get affected much by oil price fluctuations.
Amwal Al Khaleej’s sweet spot is for a deal size ranging between 100m riyals (Dh97.9) to 300m riyals, he said.
The company last year deployed more than 250m riyals on two deals – a majority stake in a Saudi sports retailer and distributor called Umark, and another undisclosed minority deal.
The company is keeping an eye on Egypt, where renewed investor confidence is reviving interest in the Arab world’s most populous country, which has a population of about 90 million.
“In Egypt we are seeing a bit of renewed interest. I’m not sure it is materialising into a lot of deals because of the challenges of repatriation of the funds for exits and the Egyptian pound,” said Mr Arbid. “It is difficult to get Egyptian pounds out of the country. Second is the challenge of the currency, which is being devalued. People are waiting for the political and economic situation to fully settle before making the jump.”
Egypt, which was thrown into turmoil in 2011, started to devalue its currency in January this year to close the gap with the black market and halt a decline of its reserves, which were used to defend the currency.
In terms of exits, the company is working on selling its stake in a Saudi firm and an Egyptian firm. The Saudi exit could be a trade sale or an initial public offering, whereas the Egyptian exit is likely to be a trade sale, Mr Arbid said, declining to name the companies.
Amwal Al Khaleej is looking to raise a little less than 300m riyals total from both exits.
dalsaadi@thenational.ae
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