Private Equity in the Middle East: The Hottest Market in the World, or a Mirage in the Desert?

by Brian DeChesare

What do you do when your country is suffering economically and offers few jobs?

Easy: Run away to more promising locations!

This transition happens everywhere, but it’s especially common for professionals in Europe.

London is the most obvious escape route, but another option is Dubai.

The hype might have died down over time, but if you find the right firm and opportunity, it still offers many benefits – like our reader today found out:

From Europe to Dubai: Breaking In

Q: Can you start by taking us through your story?

A: Sure! I’m from a continental European country, and I studied Economics and Finance at a low-ranked university there.

I got interested in M&A and investment banking after reading about them online, and I desperately wanted to get better job opportunities.

I planned to escape by doing a Master’s degree in the U.K. and getting into investment banking there, but I couldn’t afford the tuition.

So, I started applying to every single finance job I could find, and I won a back-office internship at a large international bank (not in London).

That gave me a brand name and a nice salary, but I still wanted front-office work, so I kept networking and won an M&A Analyst position at a boutique bank in my home country.

Meanwhile, I kept applying for M&A, Restructuring, and private equity roles all over – London, Zurich, Dubai, etc.

I received no responses 99% of the time, but one day I got lucky and heard back from a private equity firm based in Dubai.

They didn’t say, “Yes” immediately, but I stayed in touch with them, kept following up over the next 6-8 months, and finally went through several interviews there to win a role as an Analyst.

Analyst programs in private equity are not common in this region; a few firms offer them, but most prefer to hire Associates with IB or consulting experience.

Q: OK, great. Previous interviewees have said that interest in the Middle East is critical for winning these roles, but were you actually interested?

A: Not really. My main motivation was money and having a real job!

I researched Dubai enough to sound interested; I saw it as a better place to live and work, and I was fascinated by the international nature of it.

Intensive preparation for interviews helped me the most. I had also passed the first two levels of the CFA, and they were impressed by my technical knowledge.

Q: What qualities are firms usually seeking in candidates?

A: Most PE firms in the MENA region hire only local candidates at the Analyst level, if they even have Analyst programs.

You can read “local candidate” as “This person is connected to an important family-owned business in the region, and we want to do deals with that family in the future.”

Firms are more open to Associate-level candidates from outside the region as long as they have the right experience (2-3 years of investment banking or consulting).

Arabic and other Middle Eastern languages are not essential in Dubai because English is the effective language.

Q: I see. And what should you expect in the interview process?

A: It varies tremendously because the Middle East is all based on connections; if you get a strong referral to the firm, you might win offers without difficult or technical interviews.

But since I followed a random path, I went through four interviews with an Analyst, a Director, another Director, and then a Managing Director.

They asked all the standard questions – Why this firm, Why PE, Why the Middle East – but they did not give me a formal case study or modeling test.

They asked detailed technical questions on LBO models, growth equity investments, and debt, but nothing too crazy.

Private Equity in Dubai: A Mirage in the Desert?

Q: Previous articles have presented a mixed view of finance in the Middle East.

What’s your take on the private equity industry there?

A: The mega-funds do have a presence here: KKR has offices in Riyadh and Dubai, Blackstone has one in Dubai, and Carlyle has a separate “MENA Buyout” fund with offices in Dubai and Istanbul.

But the regional PE funds still tend to do more deals, partially because companies are smaller.

The best-known regional fund might be Abraaj, which has ~$10 billion USD in AUM as of 2017 (there’s a great story about the firm here).

A few other regional funds include Investcorp, Gulf Capital, and Samena Capital.

Much of the private equity activity here is executed by the PE arms of sovereign wealth funds or other government-owned entities, so the firms won’t necessarily show up on lists from Preqin and other sources.

Also, many of these companies are not pure-play private equity firms: They offer financial advisory, wealth management, consulting, and other services, and they also invest in infrastructure, real estate, and debt.

They often focus on growth equity rather than traditional leveraged buyouts, but it depends on the country; growth equity deals are more common in true emerging or frontier markets.

The most common industries in Dubai are energy, healthcare, and real estate.

Q: You mentioned that growth equity deals are more common.

What other differences are there in the deal process and analysis?

A: First, competitive bidding processes led by bankers are less common; more deals here come from our sourcing activities or other sponsors or SWFs selling their holdings.

Also, many firms pursue partnerships and joint ventures in additional to traditional buyouts and minority-stake deals.

Private equity funds here don’t necessarily want to commit fully to certain countries, but they can still partner with other funds to do deals.

Regarding exit strategies, IPOs are less common, and there are fewer potential buyers in many emerging/frontier markets, so firms have to be more creative.

For example, we might have to sell certain assets of a single energy company to different governments or sovereign wealth funds if no one wants the entire entity.

Sometimes we’ll also sell percentages of companies to SWFs, state-owned entities, and governments for the same reason.

Q: Before we started, you also mentioned that you had some experience working in Turkey.

Are there any big differences in the market there?

A: Energy deals were even more prevalent there, and many of the deals were development-related (raising funds to build new power plants or renewable energy assets).

One team in the country managed new developments (greenfield), and another managed acquisitions and sales of existing assets (brownfield).

The Analyst experience is better in Dubai because the teams are bigger and you get exposed to more deal types and industries.

Q: Great. And what about the workplace culture and hours?

A: The hours are a bit better than what you’ll get in London, but it is still private equity.

On weekdays, I usually arrive around 9 AM and leave at 11 PM or midnight.

Technically, I don’t have to come into the office on weekends, but I always do some amount of work. So, the average workweek for Analysts here is around 80 hours.

Do NOT come to Dubai because you think “the hours will be better.”

If you break in at the Analyst level and perform well, you have a good chance of moving up to the Associate level and beyond.

Many Analysts here aren’t fully committed to the industry – they do it for the exposure, but then they leave and join a family business.

But, as always, advancement depends on your fund’s growth.

If your fund’s AUM are not growing, and the firm is not planning to expand, it will be tough to advance to the senior levels no matter how good you are.

Q: I see – and what about the compensation there?

A: We earn lower salaries and bonuses than PE Analysts and Associates in London and New York do, but since there are no income taxes here, the after-tax compensation ends up being similar, if not slightly higher.

For example, as an Associate at a larger firm here, you might earn around what Associates at small-to-lower-middle-market funds in NY would earn.

That seems like a big discount until you realize that the tax rate is 0% rather than the 30-40% in NY.

Q: Thanks for laying that out.

Are you planning to stay in the Middle East for the long term?

A: No. I could see myself staying here for another 2-3 years and advancing up to the Associate level, but after that, I want to move into private equity in London.

I’d rather spend most of my career in London and then return to the Middle East at a more senior level because the lifestyle can be very good at that stage.

The cost of living isn’t lower, but the lack of taxes, good weather, low crime rate, and international mix make it quite appealing.

Q: Great! Thanks for your time.

A: My pleasure. I’m glad to give back to your site!

Source: http://www.mergersandinquisitions.com/private-equity-middle-east-jobs/