Private equity operations in technology companies remain strong in the MENA region. A sign of the agility of young companies in the sector in the face of the economic situation, and of a promising expected return. The trend will continue in 2021, according to a study.
Despite the economic and health crisis, technology companies in the MENA region (Middle East and North Africa) attracted investors in 2020. According to a study by the data platform Magnitt, they represented more than 1 billion investment dollars, in the form of venture capital (MENA plus Turkey and Pakistan). Experts are quite confident for the coming year. Beyond the vagaries of the economy, the sector remains promising.
“2020 has been a difficult year in many ways and the impact of the pandemic is likely to continue to affect the population as well as the region’s macroeconomic outlook,” said Philip Bahoshy, chief executive of Magnitt. Who considers the past year to be one of a “transformation” in entrepreneurship.
Faced with the need for digital, the obstacles to its adoption were quickly overcome and the market saw unprecedented surges in demand. “More than ever,” we have witnessed how technology is solving new daily distancing challenges, for consumers and businesses alike.
Over the past year, investments increased further in the food, drink and health sectors. These venture capitalists rely more on agile start-ups capable of transforming the challenges of the crisis into business opportunities and generating attractive capital gains, especially in sectors vital to households and businesses.
A year ago, Magnitt predicted that barring a geopolitical event or natural disaster, 2020 would end with $1 billion in venture capital investments in the MENA region. No one foresaw a global pandemic, but, a sign of continued growth, the bet was won, therefore, but not without nuances. It is true that the first half of the year was the scene of some major operations, already “in the pipeline” before the arrival of the pandemic.
Acceleration in 2021!
Nonetheless, in 2020, the number of exits dropped to just 13 acquisitions (-58%), for a total disclosed value of $361 million. Therein lies an effect of the economic and financial slowdown. Company shareholders were reportedly reluctant to exit to valuation levels they felt were below their expectations.
While others have been forced to readjust their strategy. However, we saw a major release in 2020 with the acquisition of Instashop for $360 million by Delivery Hero, a Berlin-based multinational online food delivery company.
In a year when travel was severely limited, the mobility of start-ups was complicated. Despite this, governments in the region have seized the opportunity to create incentive programs that allow international start-ups to adapt to the MENA zone. “The full impact of these programs will probably only be perceived when the feeling of normalcy returns”, notes the study.
Finally, intensified by Covid-19, the trend – already foreseeable at the end of 2019 – of an increase in the number of failures has materialized in 2020. The precise figures are still lacking, but we have seen more publicly announced closures than any previous year, including in the promising field of electronic commerce. On the other hand, despite the challenges of cross-border meetings in 2020, there was a slight increase (+ 3%) in the number of international investors in start-ups in the MENA region.
Courtney Powell is Director of Operations for venture capital firm 500 Startups. She considers that “2021 will be the tipping point for entrepreneurship in the MENA region”.
The coming period will see the culmination of several years of work across the ecosystem by key stakeholders, especially start-up founders. “The flow of transactions is healthy and growing stronger every day, there is more capital available than ever before and we are intensely hungry to see the region diversify, away from the historical engines of economic growth, and become a knowledge economy. leading.”
Speaking about the forecasts for the region, Mike Butcher, editor of the technical journal TechCrunch, distinguishes four points. First, “the growth we have seen will continue as the region itself develops”.
Second, “the pandemic will force businesses and consumers to ever higher levels of digitization of their lives and work.”
Third, “the vaccine, once distributed, will allow a new economic boom in the region”. Fourth, “all digitization and the new working and living practices resulting from the pandemic will be backed up by the new economic reality”.
