The following article from law firm Charles Russell Speechlys explores the involvement of Middle East-based families in the private equity space and reflects on wider trends around private market investing and development.

According to a recent KPMG report, family-owned businesses in the United Arab Emirates account for 90 per cent of the GDP, employ 80 per cent of the workforce, and represent around 90 per cent of the private companies. Traditionally seen as the economic backbone, these family-run businesses are now increasingly embracing private equity as a strategic partner for growth and modernisation.

The following commentary on such trends is from the authors Ahmad Anani, Jihane Rizk and Sevcan Aydemir, at Charles Russell Speechlys (more on the writers below this article). The editors are pleased to share this content; the usual editorial disclaimers apply to views of guest writers. Please treat such articles as a prompt for a conversation and get involved if you wish to comment. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Family businesses in the Middle East
In the Middle East, a family business is more than a commercial venture – it is a legacy, often with family members holding majority ownership and managing daily operations. These businesses form the economic backbone of the region, significantly contributing to GDP, employment, and stability. According to KPMG’s report The regenerative power of family businesses: United Arab Emirates edition (October 2022), family-owned entities in the UAE account for 60 per cent of gross domestic product, employ 80 per cent of the workforce, and represent 90 per cent of private companies.

These businesses are characterised by governance structures centred on the family head, with values rooted in trust, loyalty, and long-term relationships. Succession planning is a critical aspect, as many family businesses undergo generational transitions. However, they face challenges in an evolving economic landscape, including limited access to capital, resistance to change, and succession planning difficulties. The need for modernisation and professionalisation is becoming increasingly urgent for these businesses to remain competitive in a globalised market.

The emergence of private equity in family businesses 
Private equity has become a powerful force in the global financial landscape, and the Middle East is no exception. Beyond the funds’ arena, it serves as a form of business funding where a company receives capital from a private equity investor in exchange for a stake. These transactions are typically structured as direct acquisitions of shares in mature companies. Private equity firms employ strategies such as growth capital, buyouts, and minority stakes, offering family businesses the resources needed for expansion, professional management, modernisation, and strategic guidance.

The growing shift towards private equity in family businesses is highlighted by PwC’s Private Equity and Family Business Survey 2023. The survey reveals a dramatic change: 90 per cent of family businesses are now open to private equity investments, up from 61 per cent a decade ago and just 18 per cent in 2011. This increasing openness reflects a better understanding of the benefits private equity can provide.

Similarly, private equity investors are highly optimistic, with 98 per cent planning to invest in family businesses in the coming years. This enthusiasm highlights the unique value family businesses bring, including strong market positions and significant growth potential.

The convergence of tradition and modern finance in the Middle East
The landscape of private equity in Middle Eastern family businesses is being transformed by strategic initiatives and regulatory reforms. Governments across the region are actively pursuing economic diversification, shifting from oil-centric models to broader, knowledge-based economies. Reforms such as the liberalisation of foreign ownership laws and the creation of specialised economic zones such as the Dubai International Financial Centre, Abu Dhabi Global Market, and Qatar Financial Centre aim to attract foreign investment and stimulate private sector growth.

Enhanced legal frameworks, including improved company and bankruptcy regulations and stronger investor protection measures, have increased investor confidence. These reforms have provided greater transparency and accountability, essential for facilitating business and safeguarding investments.

As Middle Eastern economies become more globally integrated, cross-border private equity investments are increasing. Family businesses are increasingly pursuing international expansion, with private equity providing the capital and expertise to support this growth. Additionally, the region is witnessing a surge in innovation and startup activity, particularly in fintech, e-commerce, and health tech. Private equity firms are eager to invest in these high-growth sectors, driving deal activity and fostering innovation.

A success story    
The BinDawood Group, founded by the BinDawood family in 1984, is a notable example of a family business benefiting from private equity investment. Over four decades, the group has expanded to become one of Saudi Arabia’s largest supermarket and hypermarket chains. In 2016, Investcorp acquired a 7 per cent minority stake in BinDawood Holding, demonstrating confidence in the company’s strong market position and growth potential.

Following the successful initial public offering (IPO) of BinDawood Holding on the Saudi Stock Exchange on 21 October 2020, Investcorp’s stake was reduced to 5.6 per cent. This IPO marked a major milestone, transitioning the family business into a publicly traded entity and enabling broader market participation in its growth.

Investcorp’s strategy included plans to divest its remaining 5.6 per cent stake, aiming for a full exit that would complete a successful private equity investment cycle – from acquisition to IPO and eventual exit â€“ once the company achieved significant growth and market stability.

Benefits of private equity for family businesses
Reflecting on the success of private equity investments in family businesses, as seen with the BinDawood Group, it is evident that such investments can be highly beneficial.

A key advantage is the access to capital that private equity firms provide, which is crucial for family businesses planning to expand, acquire new ventures, or modernise operations. Beyond funding, private equity investors bring professional management expertise, introducing seasoned teams, governance best practices, enhanced financial reporting, and improved operational efficiency. This professionalisation often results in significant improvements in performance and long-term viability.

Strategic guidance is another major benefit. With their extensive industry expertise, private equity firms help family businesses navigate market complexities, identify growth opportunities, and refine strategies to remain competitive in an evolving landscape.

Lastly, private equity can address the sensitive issue of succession planning. These firms provide a structured approach to leadership transitions, ensuring that the business not only survives but thrives during and after the handover of power. This support helps maintain continuity, stability, and the family business legacy for future generations.

Challenges and considerations
While the benefits of private equity are substantial, family businesses must also address potential challenges. One key challenge is the conflict between traditional family business values and the profit-driven approach of private equity firms. Bridging this cultural gap requires clear communication and mutual understanding.

Legal and regulatory considerations in the Middle East also present challenges. Family businesses must navigate complex regulations and ensure compliance with local laws.

Additionally, private equity partnerships can impact family governance and succession planning. Bringing in external investors often means relinquishing some control, requiring family members to adapt to more collaborative decision-making. While private equity can support smooth succession planning through a structured approach to leadership transitions, this requires careful alignment of long-term visions and goals.

Future landscape
The future of private equity transactions in Middle Eastern family businesses appears promising. Economic diversification efforts and regulatory reforms are expected to boost deal activity in the private equity space. While traditional sectors such as retail and real estate will remain attractive, emerging industries such as technology, healthcare, and renewable energy are likely to gain increasing interest from investors.

As environmental, social, and governance factors grow in importance, family businesses that prioritise sustainability and social responsibility may find it easier to secure private equity investment.

Furthermore, as digital technology continues to transform operations, private equity is well-positioned to help family businesses navigate and capitalise on this digital transition.

Conclusion
The rise of private equity transactions in Middle Eastern family businesses signifies a shift from tradition to transaction. While the infusion of capital, professional management, and strategic guidance brings significant benefits, family businesses must thoughtfully address the challenges of this transformation. As the region evolves, the collaboration between family businesses and private equity will play a crucial role in shaping the future economic landscape.

 

The authors

Ahmad Anani
Anani (below) has more than 25 years of experience within the GCC. His practice spans a wide range of legal areas including mergers and acquisitions, initial public offerings (IPOs), joint ventures, property law, and labour law. 

Jihane Rizk
Rizk (below) is based in our Qatar office and specialises in providing strategic, high-impact legal and regulatory advice. 

Sevcan Aydemir
Aydemir (below) is a senior associate based in our Zurich office with a primary focus on Qatar; Aydemir has expertise in advising on both cross-border and domestic transactions, spanning derivatives, fixed income, private equity, M&A, capital markets, and banking and finance.