The large number of private equity firms operating in the Gulf, and the relatively small funds they manage, is unlikely to be sustainable in the long term.
This was said by Christofe Mahieu, managing director and co-head of Gulf Growth Capital, the fifth business line of Investcorp, the Bahrain-based international investment bank. Its first fund, the Gulf Opportunity Fund 1, will be a $1 billion fund and, at the time of its first closing in July last year, stood at $750 million.
"Honestly, I think there are too many private equity companies here, says Mahieu, speaking to Khaleej Times. "There are 415 to 420 private equity firms in the US; here you have about 140. The US economy is 15 to 20 times bigger than the Gulf economy so by nature you need a rationalisation of the industry," he says.
"Over time we will see a reduction in the number of players, but the players that remain will manage bigger and bigger funds," he adds. The average size of a private equity fund in the Gulf, at between $200 and 250 million, is relatively small, especially compared with the US where it is between $1 billion and $1.3 billion, says Mahieu.
The large number of private equity firms operating in the region means the industry is very competitive, and those with the strongest relationships are more likely to succeed. Europe and the US is a very auction-driven market, while in Asia and the Middle East the market is much more proprietary and confidential, Mathieu explains. "This means if you don't have a network of relationships it is very difficult to get a deal flow," he says.
Of Investcorp, he says that about 80 per cent of its transactions are proprietary, "so we're not facing that intense competition. If we just had to rely on the bankers or be in very competitive auctions like the US then it would be pretty tough, because prices would likely go very high."
Despite the need for industry rationalisation — which could be in about five or six years, suggests Mahieu — there are "tremendous opportunities in the Middle East," for those private equity firms offering a value proposition. This means bringing value-added, whether in the form of knowledge, technology or leadership development. He says: "Private equity in the US and Europe has shown tremendous value both for companies they are supporting and for investors," and it will be the same in the Middle East.
Unlike Europe, however, where companies are looking for finance, in the Middle East it is all about value added. "It is not only about financing growth. If companies only wanted finance they could go and get it because there is so much liquidity in the region. It is about value added, to make businesses more competitive and diversified," says Mathieu.
Specifically, he is referring to small to medium sized (SMEs) firms, many of which are family-owned, and are the primary target of Gulf Growth Capital. "We shape a common agenda over (an average period) of five to seven years," he says.
"These SMEs are the backbone of the economy," he continues. "What the Gulf needs is to diversify and grow the private sector very fast," and these companies, which operate in such fields as engineering, accounting, financial services and consumer finance, are crucial to achieving that.
Many of these businesses are family-owned, with revenues in the range of $100 million to $200 million, whose owners aspire to turn them into $1 billion plus operations, explains Mahieu. "To make this leap is a very different ballgame. They have to become more robust and institutionalise the whole business."
He also says that a private equity proposition "is about convincing international players that want to come to the region, or local players, that we can bring operational value, organisational value and strategic value to their business".
Investcorp has about 40 bankers in the region who have reviewed 130 possible deals for its Growth Opportunity Fund I over the past five or six months. It is "zooming in on four or five of them," says Mahieu, but hasn't closed anything yet. It will be doing so shortly. Source
This was said by Christofe Mahieu, managing director and co-head of Gulf Growth Capital, the fifth business line of Investcorp, the Bahrain-based international investment bank. Its first fund, the Gulf Opportunity Fund 1, will be a $1 billion fund and, at the time of its first closing in July last year, stood at $750 million.
"Honestly, I think there are too many private equity companies here, says Mahieu, speaking to Khaleej Times. "There are 415 to 420 private equity firms in the US; here you have about 140. The US economy is 15 to 20 times bigger than the Gulf economy so by nature you need a rationalisation of the industry," he says.
"Over time we will see a reduction in the number of players, but the players that remain will manage bigger and bigger funds," he adds. The average size of a private equity fund in the Gulf, at between $200 and 250 million, is relatively small, especially compared with the US where it is between $1 billion and $1.3 billion, says Mahieu.
The large number of private equity firms operating in the region means the industry is very competitive, and those with the strongest relationships are more likely to succeed. Europe and the US is a very auction-driven market, while in Asia and the Middle East the market is much more proprietary and confidential, Mathieu explains. "This means if you don't have a network of relationships it is very difficult to get a deal flow," he says.
Of Investcorp, he says that about 80 per cent of its transactions are proprietary, "so we're not facing that intense competition. If we just had to rely on the bankers or be in very competitive auctions like the US then it would be pretty tough, because prices would likely go very high."
Despite the need for industry rationalisation — which could be in about five or six years, suggests Mahieu — there are "tremendous opportunities in the Middle East," for those private equity firms offering a value proposition. This means bringing value-added, whether in the form of knowledge, technology or leadership development. He says: "Private equity in the US and Europe has shown tremendous value both for companies they are supporting and for investors," and it will be the same in the Middle East.
Unlike Europe, however, where companies are looking for finance, in the Middle East it is all about value added. "It is not only about financing growth. If companies only wanted finance they could go and get it because there is so much liquidity in the region. It is about value added, to make businesses more competitive and diversified," says Mathieu.
Specifically, he is referring to small to medium sized (SMEs) firms, many of which are family-owned, and are the primary target of Gulf Growth Capital. "We shape a common agenda over (an average period) of five to seven years," he says.
"These SMEs are the backbone of the economy," he continues. "What the Gulf needs is to diversify and grow the private sector very fast," and these companies, which operate in such fields as engineering, accounting, financial services and consumer finance, are crucial to achieving that.
Many of these businesses are family-owned, with revenues in the range of $100 million to $200 million, whose owners aspire to turn them into $1 billion plus operations, explains Mahieu. "To make this leap is a very different ballgame. They have to become more robust and institutionalise the whole business."
He also says that a private equity proposition "is about convincing international players that want to come to the region, or local players, that we can bring operational value, organisational value and strategic value to their business".
Investcorp has about 40 bankers in the region who have reviewed 130 possible deals for its Growth Opportunity Fund I over the past five or six months. It is "zooming in on four or five of them," says Mahieu, but hasn't closed anything yet. It will be doing so shortly. Source
No comments:
Post a Comment