THE COURAGE TO CHANGE?
PRIVATE EQUITY IN THE MIDDLE EAST
PHOTOGRAPHY BY ANISA KHADAR
Private equity firms have long realised that superior value
creation is all about the active management of portfolio
companies and that this active management is one of the
only tools within their control to generate higher returns.
Studies have shown that private equity firms actively
engaging in the management of portfolio companies
deliver returns that could be as high as double those
produced by other managers who do not engage early on.
These engrained characteristics of the business model
make private equity more of a governance platform than
a financing one: an entrepreneurial form of governance
characterised by the alignment between management
and owners. Yet, whilst most private equity managers
in the Middle East region have rapidly developed their
negotiation skills at the time of buying and selling of
30
Hawkamah issue02 56pages.indd 30
portfolio companies, few have explored the opportunities
of creating substantial shareholder value via the proactive
improvement of portfolio companies. The differentiating
factor and the most formidable challenge they face,
resides in the value creation process during the holding
period.
This challenge in the Middle East does not relate to
economic factors or financing issues, as much as it does
to the deeply rooted social and cultural values. The
evolution of regional businesses can be traced back to
the development of the gulf economies as a result of the
discovery and deployment of oil reserves. The majority of
families, organized in tribal societies, operated as traders,
until the late 1930s. Later on, the boom and subsequent
accumulation of oil driven wealth brought about the need
The Courage to Change?
Article by Jan Bladen
9/19/13 10:08 AM