June 19, 2024

DealBook: Mideast Private Equity Pioneer Looks Beyond the Unrest

 “I hold long-term views and believe fundamentals in the region remain strong,” Arif Naqvi, Abraaj Capital's chief, said of the Middle East.Simon Dawson/Bloomberg News “I hold long-term views and believe fundamentals in the region remain strong,” Arif Naqvi, Abraaj Capital’s chief, said of the Middle East.

DUBAI, United Arab Emirates — Arif Naqvi isn’t spooked by turmoil.

Abraaj Capital, his Dubai-based private equity firm, made one of its first buyouts in the aftermath of the 9/11 terrorist attacks, acquiring Aramex, a Jordanian express mail company that traded in New York.

“It was the first transaction post Sept. 11 of one Arab company buying another Arab company off of Nasdaq, so you can imagine the heightened level of scrutiny,” Mr. Naqvi said. “We bought Aramex, and it set us off on the journey of Abraaj.”

He took Aramex public in Dubai for $190 million, nearly triple the amount Abraaj paid, and it now has a market value approaching $1 billion.

Abraaj is now the largest private equity player in the Middle East, with more than $6.2 billion in assets under management. In the last two years, the firm has been involved in 25 percent of the region’s private equity deals, experience that has made Abraaj an important partner for buyout shops based in America that are looking to explore the area.

“Arif is a pioneer,” said Fadi Ghandour, the founder and chief executive of Aramex. “He is the quintessential deal-doer, never fearing to venture into new territories.”

Once again, Mr. Naqvi sees opportunity in unrest.

Amid the upheaval in Syria, Egypt, Libya and Bahrain, private equity activity in the Middle East has come largely to a standstill. Fund-raising is at a six-year low. Deals are being suspended, and some firms are pulling out of the region altogether.

But Mr. Naqvi says buyout candidates will be more plentiful in this environment, with companies coming up for sale that were previously unavailable. He is also pushing ahead on deals despite the current challenges.

Abraaj is on track to complete a $544 million deal negotiated in December for Network International, an electronics payment provider based in the United Arab Emirates. If it closes, the deal would be the biggest since the onset of the financial crisis in 2008.

“Abraaj announced one of their largest and most significant transactions at the end of 2010, showing clearly that there is real excitement about new investment opportunities,” said Yahya Jalil, private equity director of the National Investor, an investment firm based in Abu Dhabi.

While acknowledging the region’s difficulties, Mr. Naqvi is quick to point out that political and social change in the region is good for potential growth of the local economies.

“Am I concerned about our investments? No, because I hold long-term views and believe fundamentals in the region remain strong,” he said.

His comfort comes from spending much of his professional life in the Middle East. After short stints at Arthur Andersen in London and American Express in his hometown, Karachi, Pakistan, Mr. Naqvi took a job in the early 1990s as a regional business development manager for the investment company Olayan Group in Saudi Arabia.

“I landed in Saudi on the first day of the gulf war,” he said. “The timing was near perfect. It was ideal to look for innovative business opportunities.”

When an oil spill in the Persian Gulf began spreading to Saudi Arabia, he reached out to a small American company in Anchorage that provided cleanup services after the Exxon Valdez disaster in 1989. Without even securing visas, he quickly brought the firm to the region to work on the country’s decontamination efforts. Olayan, according to Mr. Naqvi, made millions on the venture by recovering oil and protecting investor interests.

In 1994, he branched out on his own, starting an investment firm in Dubai called Cupola. At the time, he said he had a “grand total of $50,000 in savings” and a Range Rover won in a raffle at a local mall. He also had few contacts. On the company’s first day, an assistant accidentally deleted the information in his Casio digital address book.

Five years later, Mr. Naqvi was bidding against the world’s largest players for the Middle East business of the logistics company Inchcape Shipping Services. After camping out in London with 14 employees for nearly a week, his firm won out, buying the business for $116 million. It was the region’s first leveraged buyout.

He said the firm faced many difficulties in acquiring the Inchcape unit, but added that when the company was eventually sold, “we made close to 20 times our capital.”

By the end of 2000, Cupola owned 35 companies in a variety sectors. With the business expanding, Mr. Naqvi hired McKinsey Company to analyze the firm’s operations and help set direction. The consultant concluded that Mr. Naqvi was running Cupola like a traditional private equity firm.

With its strategy newly defined, Mr. Naqvi decided to change the firm’s name.

“We went to every conceivable P.R. agency and rejected hundreds of names,” he said.

“Then one day my colleague, who now works for Deutsche Bank, was making doodles of Emirates Towers — or Abraaj al Emarat in Arabic — and said, ‘Hey, why not just call it Abraaj?’ The name brought us good luck.”

Aside from occasional trips to New York to visit his son at Columbia, Mr. Naqvi spends most of his time traveling across the Middle East. He recently added sub-Saharan Africa and Southeast Asia to his travel agenda.

Abraaj is looking for companies in countries like India that are poised to benefit from the commodities boom and increasing industrialization. Last month, the firm opened a Mumbai office, adding to its outposts in Singapore, Jordan, Egypt, Lebanon, Pakistan, Saudi Arabia and Turkey.

Along with larger buyouts, Abraaj is focused on nurturing small and midsize businesses, in part to help increase the job pool for the young, unemployed population in the Middle East. It is a critical issue, Mr. Naqvi said, that has come to the forefront in places like Egypt and Syria, where protests that began as student demonstrations about jobs evolved into political revolution.

“In every speech I’ve given over the past few years, I’ve talked about the young population and the growing unemployment — and how economic reform is not being accompanied by political reform,” said Mr. Naqvi, who addressed the topic at the World Economic Forum in Davos, Switzerland, this year.

“When it actually happened, I was as surprised as everyone else, but this doesn’t change fundamentals in the region.”

With job creation in mind, Mr. Naqvi has set up a number of funds to support entrepreneurs and small business owners. In 2009, Abraaj created the Riyada Enterprise Development Fund, a $50 million fund that invests in small and midsize companies in the region. He has also partnered with the Palestine Investment Fund to support Palestinian companies.

His work has encouraged investment from abroad. Last summer, the Overseas Private Investment Corporation, a United States government agency, pledged $455 million to five technology-focused funds in the Middle East and North Africa. Up to $150 million will be directed toward the Abraaj-owned Riyada Enterprise fund.

“It’s about building a culture of inclusiveness in a fragmented region,” Mr. Naqvi said. “A lot of people say entrepreneurship is about failure, but I say it’s about ensuring success by paying attention to every little detail.”

Article source: http://dealbook.nytimes.com/2011/04/27/mideast-private-equity-pioneer-looks-beyond-the-unrest/?partner=rss&emc=rss

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