The Middle East’s investment landscape is undergoing a fundamental shift driven by a host of factors such as changes in family group structures, succession, World Trade Organisation issues and efficient capital allocation, according to Faisal Juma Belhoul, founder of the Dubai-headquartered private equity management company Ithmar Capital.
Speaking at Private Equity World Middle East 2005 in Dubai today, Belhoul told delegates: “The Middle East’s private equity sector has seen an unprecedented level of activity in the last two years. This pace of activity is not simply a reflection on increased levels of liquidity in the region, or that of a new set of investment opportunities. It symbolises a fundamental shift in the investment landscape.”
Belhoul said the key factors driving the shift are family groups seeking to move to the next level of corporatisation, challenges posed by succession and the World Trade Organisation, coupled with an active educated second generation family business owners driving the change while efficient capital allocation is “becoming an increasingly important issue.”
And multi-nationals in the region are also being impacted, according to Belhoul.
“Most international companies have been present in the region for the last 20 years,” he said. “The previous structures, predominantly built around agency or franchise agreements, requiring low levels of financial commitment and strategic planning are giving way to more active involvement through joint ventures and other forms of partnerships with local groups.”
And Belhoul, whose company is focused on expansion capital and buy-outs of businesses in attractive sectors which have a Gulf Co-operation Council (GCC) focus, said the Gulf states are also assisting the shift by seeking region wide integration on a commercial level.
“Until four years back, the GCC represented a political alliance and cultural bonding of the six countries in the Gulf region,” he explained. “In the last few years, the governments have started increasingly focusing on developing policies that would allow for integration at a business level as well. The custom tariff unification, for example, has been a very significant step in this direction. And, though at an early stage, there are also talks of a common currency.
“These underlying factors have resulted in unique opportunities and challenges for private equity groups in the region.”
Belhoul said Ithmar Capital, which currently manages a US $70 million fund that is fully invested and earlier this week announced the successful first closing of its Ithmar Fund II (targeted at $150 million) as it has received commitments in excess of US $60 million, believes there are a number of opportunities for private equity in the region mostly family groups and international companies seeking regional expansion and, or, relocation.
“Family groups are a key source of private equity deal flow because some are seeking to exit non-core, but in many cases profitable businesses, while others are looking for strategic investors for late stage pre IPO play or are seeking to consolidate their regional presence in core businesses. In addition, there are underlying cultural issues which lead family groups to try and avoid selling their businesses to other family groups. Here, private equity players can serve as excellent intermediaries.
“As for international companies looking for expansion opportunities in the region, they will be looking for strategic partners to support them in their business objectives. Private equity players have an opportunity to fulfil this need because they offer strategic regional insights, focus on rigorous value creation and are a key source of capital injection and strategic exit,” he said.
"While both family groups and international companies offer distinct opportunities, private equity players need to differentiate themselves to capitalise on these opportunities and insure long term sustainability amid a landscape that is ever attracting more players. However, though growth has prompted the entry of more players into the region, sustainability will be achieved by those with a sound business model based on true, value-added propositions,” added Belhoul.
“Key differentiating factors would include strong regional insights, access to proprietary deal flow through informal family networks and international alliances, strategic alliances with international private equity groups, which can bring international companies into the region, hands-on ability to create value, knowledge of the region’s family group culture as well as credible track records, particularly in the corporate sector,” said Belhoul.
Caption: Belhoul: “Middle East investment landscape undergoing fundamental shift.”
ITHMAR CAPITAL
Ithmar Capital (Ithmar) is a Dubai based GCC-focused Private Equity Investment Company, targeting expansion capital and buyouts of businesses in attractive sectors. Ithmar has a strong regional team with financial and operational expertise and a successful track record in adding value to the companies it invests in through a hands-on-approach.
Ithmar’s vision is to be the leading regional firm in terms of conduct and return. Its shareholders include some of the most strategic GCC based institutional and high net-worth investors.
Ithmar brings together a set of unique core competencies that make it a very distinctive private equity player in the region. It has key alliances that have a considerable impact in enhancing its deal flow as well as extending its regional and global connectivity.
Ithmar’s partnership with Gulf Investment Partners (GIP), a company founded by a group of strategic GCC based institutions and high net-worth investors with very strong industrial credibility and reputation, provides Ithmar with access to high quality proprietary deal flow in addition to regional market intelligence.
Ithmar is currently managing Ithmar Fund I, a $70 million fully invested fund in a select number of firms in some of the most attractive sectors in the region.
As a result of the above success, Ithmar has recently launched its second fund, Ithmar Fund II (targeted at $150 million) which has received an overwhelming response by the investors that allowed Ithmar to have a first closing in excess of US $60 million. This fund follows a similar investment strategy to its predecessor and aims to achieve superior returns by capitalising on the new investment opportunities being generated by the surging regional economies.
