Regional GCC trends: The downward trend in the LPCI, and increasing spread versus GCC public company indices are reflective of  continuing challenges facing the construction and contracting sector, now affecting wider sectors and business confidence in general.

In some cases, already strained balance sheets, compounded by a dearth of credit for private companies compared to their public peers, shows an increasing spread reflecting risk pricing at the private company level.

We have, however, seen some encouraging early signs into 2019, and some evidence is seen in Q1 2019 with a pick up from 6.1x to 6.4x.

Valuations are seen as increasingly attractive in defensive sectors such as healthcare, food security and industrials. We expect to see these sectors drive most of private company M&A in the region in 2019.

Saudi Arabia: In Saudi Arabia, we find much more optimism going into H2 2019 and beyond. Probably the most confident we have seen the market for the past 18 months.

The recent recovery in oil price, a strong stock market performance by the Tadawul and inclusion in the MSCI index is driving a return of business confidence. 

Renewed international interest in the Kingdom for Saudi Vision 2030 and some evidence of public sector investment now flowing into private sector leading to the trickle down into consumer spending.

Societal and cultural change across Saudi Arabia is creating opportunities for inbound foreign investment and, in general Middle East governments are keen to acquire skills and technologies overseas that they can attract, import and develop further within the region.  

Cross-border investment: With private equity in the region playing defense, transactions are primarily driven by family offices and strategic buyers.

While we see value at current levels in healthcare, food security and industrials, investment continues to  been stifled by a scarcity of quality assets and sizeable opportunities are limited. Local and regional capital therefore continue to seek M&A opportunities outside the region.

We expect outbound capital flows to continue with the UK and Europe continuing as prime recipients.

Click here to view the full publication “Lumina Private Company Price Index”