Private option the way to go

Embattled private equity companies may be forced to recoup their multimillion-dollar investments through means other than public share sales in the coming year, says the head of a Saudi buyout firm.

Slack demand for initial public offerings (IPOs) could have severe consequences for private equity firms in the Gulf seeking to exit their investments. Many are already struggling to raise the cash for takeover bids.

"Get ready for exits other than IPOs," said Ammar Alkhudairy, a managing partner of Amwal AlKhaleej.

Speaking at the SuperReturn Middle East forum in Abu Dhabi, he said that floating the shares of companies bought by private equity firms would become a "non-option", because of gloomy market conditions.

After buying target companies and trying to make their management more efficient, private equity companies typically make use of exit strategies such as private sales or IPOs to resell the companies they have acquired and turn a profit.

Although he expects growth in private equity industry next year compared with this year, Mr Alkhudairy said he predicted a return to more "rational" growth following the rapid expansion seen before the recession.

But Mr Alkhudairy said buyout companies would do well to seek private sales instead of assuming IPOs would always be possible.

This should not dent the outlook for Gulf private equity, he said. "Even in the height of the market, a very respectable percentage of exits were done privately and not through IPOs.

"The potential to do that in the West is higher than here, because you've got so many private equity funds that want to pick up the ball when you have left."

Mr Alkhudairy said periods of private equity growth often accompanied previous recessions in the US and the UK. "We believe this cycle will repeat itself."

ghunter@thenational.ae