The global economic reality has witnessed a recent international increase in the private equity markets. This fact has brought up many concerns as to whether this will have a positive or negative outcome (Financial Services Authority, 2006). This document will present an overview of private equity on a global scale, as well as look into the role of private equity in the Middle East. The dissertation will also reflect on some of the effects of the enormous onslaught of this type of investment on such areas of the region as unemployment levels and economic indicators. This document attempts to evaluate the impact of these transactions on organizations in the Middle East, as well as the global reality as a whole.
In field research conducted by The World Economic Forum, it was found that the total value of companies (both equity and debt) acquired in private equity buy-outs was $3.6 trillion dollars, from the years 1970 to 2007. Between 2001 and 2007 alone, there were $2.7 trillion dollars in private equity firm investments. This represents a huge expansion in private equity investments on a global scale. Private equity has often been criticized in its ability to make relatively few managers and principal shareholders incredibly wealthy. Some commentators have noticed that private equity allows "lifestyles recalling the earlier gilded age of the late 19th-century United States." Politicians have cited the fact that private equity is often associated with a loss of jobs when companies are forced by equity groups to restructure after a takeover. (Aczel, 1996)
[...] Emerging Markets Private Equity Association (EMPEA) April 2007 Markets Private Equity Funds Raise over US$33 Billion in 2006. Emerging Markets Private Equity Association (EMPEA) April 2007 Markets Private Equity Funds Raise over US$33 Billion in 2006. Emerging Markets Private Equity Association (EMPEA) April 2007 A Secondary Market for Private Equity is Born, The Industry Standard August 2001 Investors Scramble for Infrastructure (Financial News, 2008) Buyout firms put energy infrastructure in pipeline] (MSN Money, 2008), Merchant Banking: Past and Present Laffont, J. and J. Tirole A Theory [...]
[...] This flow has led to a greater share of funds being invested on a local level, leading to an increase in both liberalization and privatization of companies, as well as increased value of regional integration (Helleiner, 1998) The Middle East is suddenly attracting private capital flows that would have been invested in other countries ten years ago.[27] Economists agree that the expanding private equity industry will most likely give a new way for families to raise funds for business venture, as well as a way for traditional models to die down. [...]
[...] In this sense, even though a company, privately held, may be worth millions, investors will have little access to the actual wealth of the company, unless given an “exit strategy,” or an opportunity to trade their shares in the private firm for liquid cash.[11] Islamic Finance and Private Equity This section will explore the Middle East Gulf region and the advance of the regional private equity industry there, as well as statistics on its prospects for the future, as well as challenges, oil prices, the global financial crisis and general issues in Islamic finance in relation to private equity. [...]
[...] Analysts state that although there is much oil-generated wealth, only the ambitious and well-connected foreign investors could invest in the private equity sector of the Middle East, citing “local intelligence” as a crucial factor. (Dovey, 2007) Chapter 3. Arab Private Equity: A Case Study of Abraaj Capital The following section of this exposition will highlight the case study of Abraaj Capital, a private equity fund which closed the largest private equity transaction in the history of the Middle East and North Africa. [...]
[...] The role of Equity Firms as an alternative investment brings new life to the Middle East, in the sense of the systematic reorganization of traditional, family-based models of business. It also represents a huge injection into the economic development of the region, such as an increase in GDP, as well as an injection of cash and financing options into the development of small and medium business, often considered the engine of any economy. In light of the Abraaj example, it would appear that the PE model is arguably the most successful example of investment management for the Gulf region (Sader, F., 2000). [...]
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