Mena private capital deals number 214 worth $19bn in H1

Private capital deals in the Middle East and North Africa have increased from 48 in H2 2018 to 214 in H1 2022, driven by tech-enabled and digital platforms – with investment rising from $5.2 billion to $19 billion, said a report.

Sovereign Wealth Funds (SWF) assets in the region are growing – driven by the energy crisis – which are being deployed in tech companies and start-ups in Mena and other global private capital markets, said the 2022 Mena Data Insight report from the Global Private Capital Association (GPCA). 

Since 2020, healthcare and pharmaceuticals have comprised 31% of overall private capital deal volume.

Venture capital

Meanwhile, Egypt has the most venture capital (VC) deals (26%) of any Mena country. About 44% of capital raised in Mena since 2021 is from Egypt-focused funds — the three largest funds have raised $468 million.

PE investors have completed more deals in healthcare than any other industry since 2020, led by acquisitions for pharmaceuticals platform Kelix Bio Investment activity in the healthcare sector has been driven by deals for regional and global platforms launched from Dubai, home to the world’s first medical free zone. 

Examples include clinic operator Humania backed by IFC AMC, IFC, IFU, EBRD and Proparco; Kelix Bio, a pan-African pharmaceuticals platform established by DPI and its co-investors; and Gulf Capital-backed healthtech ACCUMED Practice Management. Investors are also meeting demand for specialist healthcare services in the region, completing deals for ART Fertility Clinics ($30 million), oncology specialist Cliniques Internationales du Maroc Group ($10 million) and family health specialist United Eastern Medical Services Company. 

Capital flows

Still, capital flows into Mena healthcare, healthtech and pharmacies are still far from meeting demand for essential services, reaching only $2 billion in private capital investment since 2015. Companies in these sectors in Southeast Asia, a region with a comparable population, have raised over $7.4 billion in the same time period.

Exits in the healthcare sector include TVM Capital Partners’ sale of UAEbased Cambridge Medical and Rehabilitation Centre to Amanat Holdings for $232 million, representing a 25% net IRR and 4.6x MOIC. Actis, DEG, EBRD, Proparco and Riyada Managers also sold a stake in EGX-listed Cleopatra Hospital for $148 million to Riyada-managed RCare, the first continuation fund for Mena-focused assets on record.

Driving private capital investment momentum

Technology opportunities have breathed new life into Mena private capital industry. Until recently, activity in the region had slowed to a near halt, dampened by poor returns from the first generation of Mena-focused funds and the long shadow cast by The Abraaj Group’s downfall.

Yet over the past several years, the global digital revolution, accelerated by the onset of Covid-19, has driven a new wave of dealmaking in Mena’s innovation hubs. The largest private equity (PE) deal in the region on record was in the tech space: Blackstone Group acquired UAE-based technology and visa outsourcing services company VFS Global for $1.1 billion in May 2022. 

Last year, PE activity was led by Silver Lake’s $800 million investment into Abu Dhabi’s AI and cloud computing company Group 42. PE fund managers that survived the last cycle are launching new funds targeting technology and digital transformation.

Tech revolution

Governments in the region are helping to subsidise this tech revolution, monetising legacy assets in order to invest in the local startup ecosystem and diversify their economies away from oil and gas. In the latest example, Aramco Gas Pipelines Company closed a $15.5 billion sale and lease-back deal with BlackRock and Hassana Investment Company. Such transactions help capitalise initiatives such as Wa’ed Ventures, Aramco’s corporate VC arm, which has participated in recent rounds for local startups Red Sea Farms ($18.5 million), Grintafy ($8 million), Lamaa ($5.5 million) and WakeCap Technologies. 

Fintech, cloud kitchen and e-commerce

Mena VC investment activity has skyrocketed since the beginning of 2021. Even as global tech investment decelerated in Q2 2022, Mena-based startups bucked this trend, raising a record $1.1 billion. 

Deal flow has been driven by companies applying global business models to a regional context, such as Jordan-based Arabic language digital health platform Altibbi, as well as startups producing new innovations, like UAE-based smart farm Pure Harvest. Startups from the region’s top innovation hubs – the UAE, Saudi Arabia, Pakistan and Egypt – together represent 89% of capital invested in Mena VC since the beginning of 2020.

UAE-based cloud kitchen Kitopi’s $300 million Series C extension round led by SoftBank was the largest VC deal in H1 2022, pushing investment into restaurant tech startups to over $1 billion since the beginning of 2020. Fintech startups have garnered the largest share of Mena VC investment since 2020, led by Bahrainbased crypto platform Rain’s $110 million Series B in January 2022. 

Consumer demand

Activity in the space reflects rising consumer demand for crypto investment services, as well as digital payment and buy-now-pay-later (BNPL) purchasing options. E-commerce marketplaces have drawn 20% of VC dollars, including UAE-based beauty and wellness e-commerce marketplace Fresha ($152 million) and Pakistani B2B digital retailer Bazaar Technologies ($108 million).

Middle East- and Southeast Asia-focused investors are also backing Pakistan-based platforms with expansion potential into their home markets.

Pakistani startups attracted $229 million in H1 2022, a more than 3.5x yearover-year increase. Investors in the country have favored e-commerce platforms such as Bazaar, Tajir ($17 million) and Jugnu ($22.5 million). 

In July 2022, the abrupt shutdown of quick commerce platform Airlift, once the posterchild of Pakistani VC, stunned the burgeoning tech ecosystem but has not appeared to dampen investment activity. Sequoia Capital announced its first investment in the country later that month, leading Dbank’s $17.6 million seed round.

Exit opportunities

As Mena VC picks up steam, the ecosystem’s early investors are finding exit opportunities. Despite global tech stock volatility, VC fund managers listed two companies on the NASDAQ via SPAC mergers in H1 2022: Egypt-founded, UAE-based mobility company Swvl and Lebanon-based music streaming service Anghami. 

Local early-stage investors have also sold stakes to global VCs and strategic investors participating in follow-on rounds for the region’s startups. Middle East Venture Partners sold a stake in Fresha in the company’s Series C, and investors including HALA Ventures and Impact46 exited KSA-based consumer finance platform Tamara through a $110 million Checkout.com-led round. Mature local startups have also scaled to acquire other businesses in the region, with super app Careem buying MUNCH:ON, a food delivery platform backed by VCs like Global Ventures and Arzan Venture Capital, in June 2022.

Doubling down on private infrastructure

Middle East sovereign wealth funds (SWFs) have emerged as amongst the world’s most consequential investors, with trillions of dollars under management combined, a number that continues to grow amidst the current energy crisis. 

Over the past several years, these investors have become more sophisticated, building out internal direct investment teams and incorporating tech into their decision-making processes. They have also shifted their portfolio allocations away from public markets in favor of global income-generating real assets. 

High-yield transportation, renewable energy and digital infrastructure assets in fast-growing GPC markets have been amongst their primary targets. For instance, ADIA joined Indonesia Investment Authority, CDPQ and APG Asset Management in May 2021 to establish a $3.75 billion Indonesian toll road investment platform.

Since Covid-19, SWFs have also poured into tech companies that are contributing to the global digital revolution. They have joined fund managers in some of the largest tech investment rounds in GPC markets, banking on mature startups that are addressing fast-growing local consumer markets. ADQ and QIA both participated in landmark late-stage VC deals for Flipkart (India, $3.6 billion) and Trendyol (Turkey, $1.5 billion).

Infrastructure

SWFs are also committing actively to infrastructure and tech funds dedicated to GPC markets. ADQ recently invested in several Asia-focused VC funds through its venture platform DisruptAD, including Indonesia-focused AC Ventures III and Chinese agtech and foodtech vehicle Bits x Bites Fund II. 

The Abu Dhabi state holding company also launched and capitalised the $300 million Falcon Edge-managed Alpha Wave Incubation Fund, which backs Indian and Southeast Asian startups expanding into Mena. 

Mubadala Investment Company anchors all vehicles managed by its fund management arm Mubadala Capital, including two Brazil-focused special situations funds.

Investment partners

For private capital fund managers, SWFs represent not only trusted investment partners in global markets but also a path to liquidity. In July 2021, ADIA’s $500 million investment into Southeast Asian telecoms platform EdgePoint Infrastructure gave DigitalBridge a partial exit. 

Mubadala-owned Masdar, along with Egyptian strategic investor Infinity Energy, is acquiring a 60% stake in African wind and solar platform Lekela Power from Actis for ~$1 billion.

VC and Egypt-focused fundraising

Just $3.8 billion has been raised for Mena-dedicated private capital funds since the beginning of 2017, a sharp decline from the $12.8b raised in the five years prior to the Arab Spring. Many of the Mena-focused PE fund managers that survived the last fundraising cycle have only recently gained traction with LPs after facing headwinds such as the Abraaj downfall and Covid-19. 

Others like Gulf Capital have expanded their new fund mandates to include neighboring markets in Asia and Sub-Saharan Africa. VC has accounted for nearly half of capital raised and three-quarters of the vehicles reaching a close for the region since 2020, as new teams targeting early-stage tech opportunities have proliferated. 

Fund managers have received backing from government initiatives, as well as local family offices and corporates seeking exposure to new tech-enabled solutions disrupting their industries.

First-time fund

First-time fund managers like Khwarizmi Ventures, VentureSouq and Indus Valley Capital have accounted for 39% of VC fundraising in Mena since 2020, compared to just 9% raised by first-time VCs in other GPC markets. 

Early entrants to the Mena VC scene such as RAED Ventures and Ibtikar Fund have returned to market with second and third funds in relatively short order.

In 2021, established seed-stage fund manager and accelerator Flat6Labs reached closes for three vehicles focused on Jordan, Tunisia and UAE, partnering with local LPs to support early entrepreneurship in their markets.

Experienced global VCs have also raised vehicles dedicated to the region, including China-based MSA Capital and Gobi Partners.

Private capital fund

Rakiza Fund, an Oman-focused infrastructure vehicle managed by Equitix Investment Management and Oman Infrastructure Investment Management, represents the largest private capital fund raised for the region since 2015, reaching a $410 million first close in 2020. 

The fund just announced a $300 million commitment from PIF, bringing it closer to its $1 billion target. In the private credit space, fund managers have launched new Shariah-compliant vehicles to raise capital from local investors, including SHUAA Financing Opportunities Fund, NBK Capital Shari’ah Credit Opportunities Fund and Nahda Fund, a venture debt joint venture managed by Shorooq Partners and IMM Investment.

While private capital activity in Egypt declined following the 2011 revolution, the country has recently emerged as one of the region’s largest and fastest growing economies and entrepreneurial ecosystems. Investors are redoubling their activity in the country, aided by a relatively strong local LP base.

Egypt-focused funds

Egypt-focused funds have represented 44% of capital raised for Mena since 2021, led by closes for Ezdehar Management’s second fund ($171 million), EFG Hermes’ Egypt Education Fund ($150 million) and Riyada Managers’ RCare continuation fund ($148 million). 

Fundraising for the country has been boosted by recent regulations requiring Egyptian banks to allocate 25% of their loan portfolios to support local MSMEs, with private capital funds representing one path to fulfilling their quotas. In H1 2022, Global Ventures reached a $85 million first close for fintech fund Nclude with commitments from several large Egyptian national banks, and Avanz Capital announced the launch of SME fund of funds Avanz Manara.– TradeArabia News Service