Private equity (PE) dealmaking in the Middle East and North Africa (MENA) region has slowed significantly this year, owing to challenging market conditions.

In H1 2024, PE investments in the region totaled US$5.9 billion through 49 deals, representing a significant decline from the US$15.4 billion deployed in 159 deals throughout 2023, and marking MENA’s weakest performance in the past two years, new data released by PitchBook show.

PE investments refers to the practice of investing in private companies or buying out public companies to take them private, with the goal of generating significant returns. These investments are typically made by private equity firms, wealthy individuals, or institutional investors like pension funds.

PE differs from venture capital (VC) in that the strategy focuses on investing in mature and established companies, aiming for operational improvements and long-term growth. VC, on the other hand, focuses on early-stage startups with high growth potential, funding companies that are developing products but may not yet be profitable.

PitchBook’s H1 2024 MENA Private Capital Breakdown report highlights declining PE activity in the region that reflects broader challenges in the market. It emphasizes that the region is facing some of the “worst market conditions in the past two years” on PE dealmaking, marked with ongoing conflicts, volatile oil prices, and potential trade sanctions.

The data also reveal a significant shift in the distribution of PE investments this year, with financial services seeing a sharp decline while the IT, healthcare, and business-to-consumer (B2C) sectors are gaining traction.

PitchBook attributes the rise in healthcare investments to the increasing and ageing populations in the MENA region, while growth in IT and B2C is being driven by increasing digital transformation, higher Internet penetration, and demand for consumer-focused digital services. Additionally, supportive government initiatives and reforms aimed at diversifying economies beyond oil are attracting more PE investments to these high-growth sectors.

VC funding falls

Like PE, VC is also seeing a decline this year. In H1 2024, US$1.3 billion was invested across 321 VC deals in MENA, with activity projected to fall short of 2023 levels by the end of the year and continue its downward trend. In 2023, VC investments totaled US$4 billion across 720 deals, down from a peak of US$5.5 billion and 894 deals in 2022.

Despite the overall decline, some sectors have seen notable VC deals, with software investments accounting for a significant 51.1% of deal count and 59% of total deal value.

For example, in Q2 2024, software-as-a-service (SaaS) e-commerce enablement platform Salla completed a pre-IPO funding round of US$130 million.

Founded in 2016, Salla aims to support Saudi Arabian small and medium-sized enterprises (SMEs) and entrepreneurs by providing a fully-digitalized and automated e-commerce solution, allowing merchants to build their e-commerce website, start selling their products online within a few hours, accept online payments, and ship their products to customers.

Salla currently supports over 80,000 merchants and has enabled US$7 billion in e-commerce sales since 2020.

The cryptocurrency and blockchain sectors also contributed significantly, with Web3 infrastructure provider Avail raising US$27 million in Q1 2024 and US$43 million in Q2 2024. Avail began in 2020 under crypto firm Polygon Labs, before being spun off in 2023. The company’s technology allows customers to build their own blockchains quickly, focusing on enhancing the availability, interoperability, and scalability of data networks.

Fintech investments decline

Following regional dealmaking patterns, fintech investments in MENA have seen a notable contraction this year. In H1 2024, fintech funding fell by a staggering 59% year-over-year (YoY) to reach US$186 million, according to Magnitt’s MENA Fintech Venture Investment Report. This drop was largely due to the absence of megarounds, which had previously driven much of the sector’s growth, the report says.

Country-wise, the funding landscape varied significantly. Saudi Arabia performed exceptionally well, recording a 391% increase in fintech funding, largely due to three major deals that accounted for 74% of the country’s total funding.

In contrast, the United Arab Emirates (UAE) experienced a YoY decline of 36% in total funding, dropping from US$114 million in H1 2023 to US$73 million in H1 2024. However, the UAE maintained its position as the leader in both funding and deal count.

Egypt, meanwhile, experienced a substantial drop, recording a 87% YoY decline in funding from US$290 million in H1 2023 to a mere US$39 million H1 2024.

Despite the challenging environment, several fintech startups have managed to secure substantial rounds of financing this year. Notable deals so far in 2024 include Egypt’s MNT-Halan raising US$157.5 million, Paymob securing a US$22 million Series B, UAE-based Yuze raising US$30 million, Ziina obtaining a US$22 million Series A, and Saudi Arabia’s Moyasar securing US$21 million in seed funding.

Featured image credit: edited from freepik