GrowthGate Capital Corp., a Dubai- based private-equity (PEY) firm with investments in companies that are valued at $1.4 billion, said it may invest an additional $200 million in businesses in the Middle East that weren’t hurt by the turmoil of the Arab Spring as difficulties raising funds abate.
“The markets that we like the most, the Gulf Cooperation Council, plus Jordan and Morocco, have gained more prominence after the Arab Spring and we think that they hold the most promise for private equity,” Karim Souaid, managing partner of Dubai-based GrowthGate, said in an interview on Dec. 31. “The private-equity ecosystem in these countries is at its best, and that’s political stability, economic prospects, middle class, demographics, purchasing power and rule of law.”
Fundraising by private-equity firms in the Middle East and North Africa fell to $672 million in 2011, less than half the $1.5 billion of 2010, according to a study published in June by the MENA Private Equity Association, a Dubai-based lobby group. The industry gathered about $6 billion in 2008. Firms struggled to attract investors as uprisings toppled governments in Egypt, Tunisia and Libya and Europe’s sovereign-debt crisis worsened.
GrowthGate deployed $200 million of the money it raised since its inception in 2007 in Saudi Arabia, where about half its investments are, as well as the United Arab Emirates and Jordan, Souaid said. The firm’s investments grew at an annual compound rate of 18 percent from 2007 to 2012 and it may start a fresh round of capital raising in mid-2013, he said.
“GrowthGate intends to duplicate its existing private- equity investments of $200 million into new targets in 2013 and beyond,” said Souaid, 48, a former investment banker.
Souaid, who coined the term “MUST” to designate what he calls the key markets of Morocco, U.A.E, Saudi Arabia (SABIC) and Turkey, has spent money buying into services that are not capital intensive and which he calls “middle market,” including logistics, waste management, and food. He’s considering investments in property management and oil-field services.
“We’re generalists,” Souaid said. “Our investments depend upon a number of criteria, including good management, usually founders’ management. We don’t buy into distressed. We only invest in properly managed old-economy type of businesses. We don’t look at fancy stuff.”
Typically the firm invests $20 million to $25 million in companies that have a value of $50 million to $200 million.
“Every single company that we’ve invested in outside of Saudi Arabia had only one priority in mind: to get into the Saudi market,” Souaid said. “And Saudi has the beauty of not only having the financial strength but it also has the demographic power. Within the Gulf Cooperation Council, it’s the largest.”
GrowthGate’s companies include Gama Aviation Ltd., an aircraft leasing company; Averda, a waste-management company; and Roots Steel, a Saudi Arabia-based company. “We get hands-on not in managing but monitoring these companies, in assisting them, in supporting their development, in giving them access to the regional markets -- but we only invest in well-managed and strongly managed companies,” said Souaid.
GrowthGate has a few exits on track, though is waiting, like many private equity firms that have extended their holding horizon, for the right time to divest, Souaid said. Markets in the region have underperformed emerging markets (EEM:US), with the Bloomberg GCC 200 Index of the biggest Gulf Cooperation Council stocks up 3.7 percent in 2012, lagging behind the 15 percent rally in the MSCI Emerging Markets Index.
“Surely we would like to put certain assets on the exit path and the capital markets have not been the most conducive,” Souaid said. “2013 is a promising year for the region and we look forward that some of these investments will be realized.”
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