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UAE Market Analysis 2009

An Investment Case for Buying a Business in Dubai

Risk and Return in the Current Market Environment:

There has been no shelter for investors over the last six months save for US Treasuries. Real estate worldwide has declined by 30-50% or more. Supposedly safe assets such as high-grade corporate debt have suffered large double digit losses. Even bank deposits are threatened by insolvencies. As the crowd has moved towards the last supposedly safe asset, US Treasuries, yields have plummeted to near 0% causing talk of a new bubble.

So where in this market can you find investments with a favorable risk-adjusted return?

Investor returns come from two sources, current cash-flow yield and the growth of the business. Buying a small to mid-sized business in the UAE achieves returns from both sources.

• Current returns in excess of 30%
• 5 year growth potential driven by macro-economic and demographic growth

Buying a Business in the UAE: Value-Added to Financial Investment:

Advisors generally recommend that high-net worth investors hold a 10-20% of their portfolio in private equity firms. Historically, these investments have offered returns in excess of 30%. Yet investors in private equity funds generally trust professional fund managers with their capital for three to five years and pay these managers over 20% of the profits.

In the current market environment, successful entrepreneurs are often better positioned than private equity firms to improve the performance of a business. Successful entrepreneurs bring a local platform of longstanding customer relationships, logistical assets, and trusted managers who can grow revenue while reducing overhead costs. At the same time, the current market environment lessens the importance of financial engineering that private equity firms use to enhance returns.

Buying a business in Dubai is likely one of the best investments an entrepreneur can make.

Investments That Benefit in Spite of Declining Property Prices:

Looking beyond the current gloom, many businesses will benefit from the decline in Dubai property prices. In fact, most businesses not tied directly to construction will benefit due to the simple fact that 90,000 residential units and tens of millions of square feet of commercial/ industrial real estate will be delivered by the end of 2010. The delivery of these units will increase Dubai’s commercial capacity by approximately 40%, even after reflecting significant recent cancellations.¹

At some price, all the property nearing completion will be occupied by new residents and businesses, guaranteeing market growth over the next 2-5 years.

Market Expectations for Long term growth:

Current market expectations contain the seeds of future growth. Growth in the UAE is likely to exceed that of more mature, developed western economies. As property asset prices decline, businesses serving the local and regional population will continue to grow for the following reasons:

• A more competitive cost of doing business as rents will decline to more reasonable levels, attracting new businesses
• A growing local population and consumer market, with 90,000 units delivered over next 2 years, mostly to higher end customers.
• A sustainable competitive advantage as the commercial capital of a rapidly growing region with favorable demographics.

Dubai: a Larger Market Potential at Lower Price:

There are many factors that have contributed to Dubai’s historic growth: a central location to serve rapidly growing markets, a world-class logistics plant, a cosmopolitan environment attractive to high-end consumers, a progressive, stable government, and extremely low tax rates. The attractiveness of this market led to sky-rocketing rents, limiting growth for existing businesses while preventing new entrepreneurs from moving in.

Reduced rents make Dubai’s competitive advantages more affordable to the international business community that has driven the city’s historic growth.

Businesses for Sale in the UAE:

Below are some examples of businesses for sale. Additional businesses for sale are available at www.capitalstreet.net, the best place to buy or sell a business in the UAE. Most of our listings are priced to offer returns on investment in excess of 30%, based on current income. However, many of these businesses also have growth potential in excess of the local market. The terms of sale, including the possibility for seller financing are also negotiable.

Business	Description	Asking Price (AED)
Glass Processing Factory	Brand new 2500 sq meter facility Facility shuttered due to partnership dispute/working capital requirements Available at a discount to asset cost	12,845,000
HR Company	Market leading firm with top position in attractive niche Continuing historic growth trend of 10-30% in current market environment Excellent platform for regional growth	11,000,000
Cold rolled steel processing	Niche production steel market Strong manager in place with 30 years experience in GCC Equity injection needed to improve bank facility terms	6,400,000
Self-Storage Warehouse	Rapidly growing business model Serving individuals and small business’ needs for flexible storage space Current occupancy almost 80% occupied	2,936,000
Luxury Transport Company	20 vehicles, most under long term contract to drivers 20 more vehicles required to support drivers Contracts with several top hotels	2,753,000
Freight Forwarding Company	Longstanding presence locally with around 30 customers Good trade with North African market	2,569,000
Hotel Apartments	25 rooms in good location in Sharjah 10+ year history 10 year lease on property	2,478,000
Water Processing & Bottling Plant	Recession resistant consumer staple with solid gross margins High-margin product with high value-added potential to sales and distribution platform Approximately 5,000 5 gallon bottles in circulation through Dubai and UAQ	2,000,000