Posts Tagged “MENA”

Spotlight Series: Stephen Murphy, Citadel Capital on the MENA region.

November 22, 2020

Stephen Murphy, Managing Director, Citadel Capital participated in and won the Quickfire Showcase.  In an interview for the Spotlight Series, Stephen explained the attractions of the MENA region, amongst them its limited local competition.

Post Under: Africa

Spotlight series: Dr Karim El-Solh discusses the reasons to invest in the MENA and how it compares to the BRICs.

November 9, 2020

Dr Karim El-Solh Chief Executive Officer, Gulf Capital, took part in an expert panel debate entitled ‘Is The MENA Region Is As Attractive As The BRICs For Private Equity Investing?’

The other panelists were Faisal Belhoul, Founder & Managing Partner, Ithmar Capital, Juan Delgado-Moreira, Managing Director, Hamilton Lane, Orhan Osmansoy, CEO, The National Investor.
The moderator for this debate was Thomas Kubr, CEO, Capital Dynamics

In an interview with Dori Dana-Haeri, Acrostic, Karim discusses reasons to invest in the MENA and how it compares to the BRICs.

Post Under: Middle East

Build trust to access growth

October 18, 2020

In his presentation, Omar Lodhi, Executive Director at Abraaj Capital looked at the challenges facing MENA GPs in taking companies to the next level.

Understanding the opportunities in the MENA region is important as only then will the GPs bring the right tool kit.  Private equity is an underdeveloped asset class in MENA with GDP penetration of 1.3% compared to USA at 7.7%

Some of the driving forces for the continued growth of the market include the young population, and the supply/demand imbalance which a growth opportunity that is about 10 years behind Asia so even lower hanging fruit.

Common misconceptions of investors include seeing the region as just an oil play when in fact, 70% GDP comes from non-oil sectors.  Sovereign Wealth Funds are not crowding out the private sector.  Looking at their investments by target region, MENA attracts 4% compared to Asia at 33% and the EU at 30%.

Private equity opportunities exist with a high degree of founder owned businesses.  The biggest challenge for GPs is to convince the founders to give them the requisite control in their businesses and build alignment with them.  And this point should be stressed.  To grow and develop the business, the GP managers must build trust and align goals with the founder owners.  Strong legal frameworks can not replace good working relationships.

Finally looking to the last stage of the cycle, the dominant exit route for current vintage funds will remain trade sales.  This option is bolstered by growing intra and interregional merger and acquisition (M&A) activity.  Initial public offerings (IPOs) will become an increasingly important exit option with reforms to bourses throughout the region.

In his presentation, Omar Lodhi, Executive Director at Abraaj Capital looked at the challenges facing MENA GPs in taking companies to the next level.

Understanding the opportunities in the MENA region is important as only then will the GPs bring the right tool kit. Private equity is an underdeveloped asset class in MENA with GDP penetration of 1.3% compared to USA at 7.7%

Some of the driving forces for the continued growth of the market include the young population, and the supply/demand imbalance which a growth opportunity that is about 10 years behind Asia so even lower hanging fruit.

Common misconceptions of investors include seeing the region as just an oil play when in fact, 70% GDP comes from non-oil sectors. Sovereign Wealth Funds are not crowding out the private sector. Looking at their investments by target region, MENA attracts 4% compared to Asia at 33% and the EU at 30%.

Private equity opportunities exist with a high degree of founder owned businesses. The biggest challenge for GPs is to convince the founders to give them the requisite control in their businesses and build alignment with them. And this point should be stressed. To grow and develop the business, the GP managers must build trust and align goals with the founder owners. Strong legal frameworks can not replace good working relationships.

Finally looking to the last stage of the cycle, the dominant exit route for current vintage funds will remain trade sales. This option is bolstered by growing intra and interregional merger and acquisition (M&A) activity. Initial public offerings (IPOs) will become an increasingly important exit option with reforms to bourses throughout the region.

Post Under: Middle East

11 lessons for firms pushing the final frontier

October 18, 2020

Dr Ahmed Heikal, Chairman and founder of Citadel Capital gave an entertaining presentation to the delegates contending that the risks of investing in MENA are balanced by the advantages.

“If you have little stomach for risk, go to Switzerland”, said Dr Heikal, “If you want to build highways, energy distribution, an agribusiness that will deliver returns over 10 years, you’re in the right room”.

Right now, Citadel is looking at countries in the region that have large consumer bases, are rich in natural resources and who’s banking structures are evolved.  Egypt, Syria, Algeria, Nigeria and South Africa feature strongly for these reasons.  So what are the lessons then?

.

Lesson 1 – Have a grand vision

Don’t accumulate insignificant stakes, if you are convinced then go for it.

Lesson 2 – Have a clear strategy

Know how you are going to grow by understanding the drivers of opportunity namely

Deregulation

Cost competitive inputs

Growth of consumer demand/ unfulfilled needs

Risk arbitrage

Lesson 3 - Don’t skimp on management training

Seek out the best management expertise available and more of it than you need.  MENA is not a retirement destination, look for managers who seek challenges and challenge them.  This is key not just to structuring and executing deals but for keeping them on track during the growth phase.

Lesson 4 - Do give government a second look

Governments in the MENA region have never been more private sector friendly.  This is driven by stretched balance sheets and rising expectations from a fast-growing middle class.

Lesson 5 - Don’t be blinded by the commodities boom

Lesson 6 - Do give yourself some slack.

Have sufficient management depth to invest in regular communications with LPs, bankers, shareholders and multilaterals.  This communication will be a key driver of your ongoing success.

Lesson 7 - Don’t be blinkered in considering your sources of finance.

Regional banks are willing and able to fund mid sized project.

Lesson 8 - Resist the urge to begin a project without full financing in place. (Dr Heikal placed particular emphasis on this one!)

Lesson 9 - Be selective

Take the time you need to explore and plan the right deals.  It is not a case of too much capital chasing too few deals but rather significantly more deals on offer than there is capital available.  Never be afraid to say no.

Lesson 10 - Do invest in governance to ensure

Origination in deals

Control cost of capital

Identification and correlation of risk enabling quick and well informed decisions

Alignment of interests with your LPs.

Lesson 11 - Above all, be patient.

The most compelling plays with the highest potential returns are large deals that take time to put together and time to mature to exit.  Consider consumer industry, basic industries, commodities and infrastructure.

IF you’re not willing to bet on 10 year investments, this may not be the place for you.

Post Under: Middle East

“Dry powder” and changing LP attitudes

October 17, 2020

In two very interesting presentations to open the LP summit at SuperReturn Middle East in Abu Dhabi this year, both Stephen Murphy of Citadel Capital and Mark O’Hare of Prequin looked at the shape of the MENA region’s PE market from the peaks of 2007, through the financial crisis to now.

Stephen Murphy prefaced his presentation by clarifying why he as a GP should be addressing a summit of LPs.  Citadel adopt the Hedge Fund model; they always invest in their own funds.   His mission was to get to the root of the “dry powder” debate.  General report sets it at $28 billion but what is that made up of and what is the real amount available for investment right now?  A recent report from Booz & Capital set the figure at a more modest $11 billion.  By applying some rigor Stephen arrived at a figure of $7 billion.

Another question troubling Stephen was why does only 10% of the capital invested in Emerging Markets find its way to the MENA region.  Could it be that not all the levers for value growth in place and there isn’t a clear exit strategy.  Local stock markets tend not to perform as well as their international counterparts.  Added to that is the competition from sovereign wealth funds.

An issue for International LPs could be the quality and expertise of some of the local senior management talent.  This is where the recent crisis could benefit the region.  The available talent pool for experienced and seasoned senior executives just got larger and MENA is a real and attractive option for many.

But the biggest question of all is “what will the return on existing investments be?”

Mark O’Hare looked at the changing LP attitudes and behaviours.  He started with a summary overview of private equity fundraising

1. Deals and exits are recovering
2. LPs “sticking with the programme”
3. GPs in compelling  propositions are succeeding

If you compare the private equity asset class with the available investment options on the public markets, private equity will outperform over a 5 year period.  In shorter time spans, the public market has more to offer, but approval ratings for private equity are still high amongst investors.

Between 2007 and now, the % for LPs expectations being exceeded has reduced from 24 to 9 but % meeting expectations remained reasonably static from 74 to 70.  What has changed in the expected return.  In 2007, public markets + 2% was considered acceptable, now its > 4%.

Turning to re-ups, only 13% of LPs will be reinvesting with all their managers, while 85% plan to stay with some existing managers.  When questioned about where he thought the 85% planned to migrate their capital not recommitted, Mark gave his personal view that LPs were reducing the spread of their GP pool not their capital invested in private equity.

The funds of choice with LPs are mid-market buyouts and distressed private equity but Mark’s believes that the mega funds like Blackstone are on the rise again.

And finally, Mark polled the LPs audience about their view on the emerging trend of direct investment by LPs; will it increase or fade out?  The jury’s out I’m afraid!

In two very interesting presentations to open the LP summit at SuperReturn Middle East in Abu Dhabi this year, both Stephen Murphy of Citadel Capital and Mark O’Hare of Prequin looked at the shape of the MENA region’s PE market from the peaks of 2007, through the financial crisis to now.

Stephen Murphy prefaced his presentation by clarifying why he as a GP should be addressing a summit of LPs.  Citadel adopt the Hedge Fund model; they always invest in their own funds.   His mission was to get to the root of the “dry powder” debate.  General report sets it at $28 billion but what is that made up of and what is the real amount available for investment right now?  A recent report from Booz & Capital set the figure at a more modest $11 billion.  By applying some rigor Stephen arrived at a figure of $7 billion.

Another question troubling Stephen was why does only 10% of the capital invested in Emerging Markets find its way to the MENA region.  Could it be that not all the levers for value growth in place and there isn’t a clear exit strategy.  Local stock markets tend not to perform as well as their international counterparts.  Added to that is the competition from sovereign wealth funds.

An issue for International LPs could be the quality and expertise of some of the local senior management talent.  This is where the recent crisis could benefit the region. The available talent pool for experienced and seasoned senior executives just got larger and MENA is a real and attractive option for many.

But the biggest question of all is “what will the return on existing investments be?”

Mark O’Hare looked at the changing LP attitudes and behaviours. He started with a summary overview of private equity fundraising

i. Deals and exits are recovering

ii. LPs “sticking with the programme”

iii. GPs in compelling propositions are succeeding

If you compare the private equity asset class with the available investment options on the public markets, private equity will outperform over a 5 year period. In shorter time spans, the public market has more to offer, but approval ratings for private equity are still high amongst investors.

Between 2007 and now, the % for LPs expectations being exceeded has reduced from 24 to 9 but % meeting expectations remained reasonably static from 74 to 70. What has changed in the expected return. In 2007, public markets + 2% was considered acceptable, now its > 4%.

Turning to re-ups, only 13% of LPs will be reinvesting with all their managers, while 85% plan to stay with some existing managers. When questioned about where he thought the 85% planned to migrate their capital not recommitted, Mark gave his personal view that LPs were reducing the spread of their GP pool not their capital invested in private equity.

The funds of choice with LPs are mid-market buyouts and distressed private equity but Mark’s believes that the mega funds like Blackstone are on the rise again.

And finally, Mark polled the LPs audience about their view on the emerging trend of direct investment by LPs; will it increase or fade out? The jury’s out I’m afraid!

Post Under: Middle East


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