Private equity has just begun to dip its toes into Pakistan
Pakistan is a parliamentary federal republic in South Asia, with a population of more than 193 million people. It borders India, Afghanistan, Iran and China. Experts have high hopes for this country, as it is one of the largest producers of natural commodities in the world. So far, however, M&A activity has been scarce. The country's GDP is growing at nearly 4 percent per year to about $231 billion. It is significantly smaller in size than India and has only about 14 percent of the population. Urdu and English are the official languages.
The opportunities for dealmaking are limited so far. There have been only about half a dozen M&A deals completed since the beginning of 2012, and none of them involved a U.S. buyer.
A wide range of issues raise flags for investors, from government corruption to suicide bombings. The escalation of nuclear capabilities in Pakistan and its ongoing arms race with India is also disconcerting. Additional challenges include lack of acquisition financing and the reluctance on the part of family-owned business to sell. Private equity firms have yet to find their place in the country. The Securities and Exchange Commission (SEC) of Pakistan has described private equity dealmaking in the country as dormant. According to the SEC of Pakistan, three undisclosed private equity firms are currently registered to invest in companies in the country, but at least one has reportedly cooled on the country, citing poor economic conditions.
The majority of deals have been in the oil and gas sector, Pakistan's largest industry. For example, Pakistan Petroleum Ltd., based in Karachi, acquired MND Exploration & Production Ltd., an oil and gas company based in the capital city of Islamabad. Toronto-based Jura Energy Corp. acquired Spud Energy Pty Ltd., an oil and gas company based in Islamabad.
Deals outside energy have included Warid Telecom International, a cellular company based in Lahore, acquiring all of its outstanding shares from SingTel for $150 million during the second quarter of 2013. And in November 2012, Pakistani executive Ikram Sehgal (pictured) bought a 50 percent stake in Wackenhut Pakistan Ltd., a security company headquartered in Karachi.
Most transactions in the country are expected to come from the oil and gas industry.