The Bahrain investment house that once owned Gucci is coming to Abu Dhabi as buyout companies ride a US$20 billion (Dh73.46bn) tide of deal-making.
Manama-listed Investcorp and the UAE’s Dubai Investments are among the regional groups seeking to benefit from rising demand for alternative investments as low interest rates, falling bond yields and volatile equity markets drive the search for better returns.
“There is a lot of private money coming in, and it is being driven by interest rates,” said Khalid bin Kalban, the chief executive of Dubai Investments.
“Private equity firms are buying with the view that the market is trending positively. The liquidity is available.”
Investcorp yesterday disclosed it had bought a controlling stake in Hydrasun, an oil and gas services company based in the United Kingdom, the latest in a string of acquisitions made over the past year.
It comes as the alternative investment manager seeks to boost its regional footprint with office openings planned for both Abu Dhabi and Doha. It has also opened an office in Riyadh.
The region’s previously subdued buyout industry is experiencing a renewed rush of activity as business confidence grows and deal activity increases. Abraaj Capital this month was said to be considering the sale of its controlling stake in Spinneys, Bloomberg reported. Gulf Capital also this month said it had bought a 51 per cent stake in OCB Oil Services, a rig crew supplier based in Dubai.
Mergers and acquisitions with Middle East targets reached $20bn last year – double the activity of a year earlier according to Thomson Reuters data.
It said the UK was the most popular target for outbound Middle Eastern mergers and acquisitions transactions, followed by Brazil and India.
“There are certainly more deals being looked at. We have seen more momentum in the last six months,” said Vikas Papriwal, the regional head of sovereign wealth funds and private equity at KPMG.
“The biggest problem with the private equity industry has been uncertain market baselines. Now that valuations are stabilised and repeating themselves quarter on quarter, investors are getting more comfortable.”
Investcorp's move to open regional offices also reflects increased interest from Arabian Gulf investors in alternative investments.
"We want to cater to our clients and be regulated in their markets," said Mohammed Al Shroogi, the president for Arabian Gulf business at Investcorp.
But the move may not indicate an increased appetite for regional investments or discounted assets from Arab Spring countries. While other Gulf corporations have been quick to buy up attractively priced companies in countries such as Egypt, Investcorp has avoided economies hit by political upheaval.
“We have taken a business decision not to invest because of the unrest,” Mr Shroogi said. “Maybe in the future when things settle. We don’t go there for political reasons, we are there if it makes economic sense.”
Investcorp declined to disclose the value of the Hydrasun transaction or the size of the stake in the company, which employs 600 people across Europe, the Middle East, Africa and South America.
Investcorp has made $1.5bn worth of acquisitions in the past year as it recycles the proceeds of about $2.5bn in investment exits made over the past two years.
halsayegh@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
