Private equity companies in the region on a roll

DUBAI — With liquidity levels in the GCC at unprecedented levels private equity firms have been pouring into the region, and to Dubai in particular. Several of these firms have been operating for some months, or even a couple of years, seeking to establish a track record and consolidate their position in the market before shouting too loudly.

By Lucia Dore (Assistant Editor, Business)

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Published: Fri 20 Apr 2007, 9:44 AM

Last updated: Sat 4 Apr 2015, 9:15 PM

This week alone at least two private equity firms have come out of the shadows, stating that now they have several hefty deals under their belt it is the right time to go public and tout for more business.

The popularity of private equity investors in emerging markets is growing, as local and regional companies increasingly understand the advantages of a private equity partner, such as bringing market knowledge and practised management skills. According to statistics produced by the Gulf Venture Capital Association (GVCA), the private equity sector in the region doubled in 2006 to almost $18 billion.

Saffar Capital, the Dubai-based boutique investment and advisory firm, is one such company. While Saffar provides the management team, its holding company, ABQ Investments (which comprises 36 shareholders from Kuwait, Saudi Arabia and the UAE) provides the funding. Among ABQ Investment's best-known deals is the acquisition of data and information company, Zawya, in early 2002 to form ABQ Zawya. Saffar Capital advised on the deal.

Other deals on which it has advised include the acquisition of a stake in Al Awael International Securities, as well as executing the licensing mandate for Saudi Swiss Securities in Saudi Arabia. Saudi Suisse was established in November 2005 as a brokerage and asset management firm, with the Swiss investment bank, Credit Suisse, taking a 16 per cent stake. The company will be submitting its application for a full banking licence early in the third quarter this year, said Saudi Suisse's managing director, Sabah Hamad Al Sabah Al Binali, who is also a principal at Saffar Capital. He said that Saudi Suisse wanted to "help fund flows cross border" and that it "wanted to be a sell side adviser in M&A." In addition, he said that there "was an understanding that Credit Suisse could be increasing its stake" in the company.

Saffar Capital is focused on financing early stage companies - "before companies are cash flow positive," said CEO, Mishaal Al Usaimi. Saffar wants to build and develop GCC-based organisations that are regional or are seeking to become regional. A deal in the telecom sector is imminent, he continued, and said that the firm also sees opportunities in the "infrastructure" sector, particularly in the provision of auxiliary oil services.

Another private equity firm to "come out" this week is Amwal Alkhaleej, a regional private investment firm headquartered in Riyadh, Saudi Arabia. It "focuses on securing significant minority equity positions", said executive vice-president, Alwaleed Abdelrahman, who also described buyouts as "difficult" because "people don't want to lose control". "You limit opportunities if you want a majority control," he said, family-controlled businesses being a case in point.

Abdelrahman insisted however that it was not necessary for his firm to have a controlling interest as long as it still retained "significant control to ensure its interest". This is why forging strong partnerships and relationship building was imperative, he said.

Amwal focuses on sectors in which it can provide a "value addition", said Abdelrahman. The company, which also has offices in Cairo and Dubai, has so far invested Dh1 billion in a variety of projects across numerous sectors, including Nass Construction in Bahrain, Al Tayer in Saudi Arabia, and Marine Industrial Services in the UAE.

So far, Amwal has shied away from investing in real estate, "because there are many layers and we can't identify value easily", said Abdelrahman. The real estate sector is not yet mature enough and Amwal would only become involved if, and when, there were opportunities for "financial engineering", he said.

As well as a rapid growth in the number of private equity firms in the region, private equity funds are becoming more popular with a total of $5.2 billion under management, according to GVCA statistics. The average size of funds are more than doubling each year and benchmark rates of return in the region are nearly double those in Europe and the US at above 30 per cent.

"New and more flexible investment techniques are fuelling demand for instruments including stock futures and options," said Khaled Al Muhairy, CEO of Evolvence Capital, an alternative investment company.

Starting Saturday, it is holding its 4th annual conference and will explore key trends in global and regional private equity as well as the challenges involved in managing investment programmes.

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