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Investcorp eyes 30pc rise in key assets

DUBAI, October 25, 2014

Investcorp is targeting a more than 30 per cent hike in its assets under management (AUMs) in the next five years as Middle Eastern investors increasingly see private equity as a way to diversify out of traditional investment routes.

Those in the region with money to invest have historically placed it in real estate and the stock market, meaning that the region represents a tiny fraction of global private equity assets despite its affluence.

However, the increasing sophistication of Middle Eastern investors means they are beginning to allocate more of their cash to private equity, which is a boon for firms in the region, according to Mohammed al-Shroogi, president of Gulf business at alternative investment firm Investcorp.

"The two pipes of real estate and equity are almost full so you need to create a third pipe, which is private equity," Shroogi told the Reuters Middle East Investment Summit.

"The third pipe isn't going to be filled but there is a huge room for the liquidity to transfer and diversify away from these other two investment opportunities in the Gulf."

Founded in 1982, making it one of the oldest Middle Eastern private equity houses, Investcorp is best known in the global space for listing luxury goods brands such as Gucci and Tiffany & Company.

With $11.4 billion of AUMs as of June 30 this year, it is aiming to raise this to $15 billion in the next five years, although Shroogi admits the figure is conservative.

But the era of being known only as a luxury brands investor has passed for Investcorp, despite being heavily linked with two such names in the past 12 months.

"(Roberto) Cavalli approached us but we didn't look at the deal, but Versace we did," Shroogi said, adding it walked away from the Versace deal as Investcorp thought it was too expensive.

"Once in a while you'll find a brand name that you'll look at and if that brand name is an opportunity then we will bring that opportunity."

Investcorp targets deals in the mid-market space of around $200 million to $300 million in the US, Europe and the Middle East. After fully acquiring an asset, it sells between 85 and 90 per cent to its clients.

It is currently looking to complete three private equity buys, one each in Europe, the US and Turkey, Shroogi said, while the firm is also close to signing a real estate deal in the US. He declined to elaborate on details.

So far this year, the firm has closed deals including Dutch printing products firm SPGPrints Group, which it was currently marketing to clients and which should close soon, and U.S. accessories brand Totes Isotoner Corp, which it bought with Freeman Spogli & Company.

Each investment the firm makes, it targets a return of three times its original outlay, Shroogi said, a figure it exceeded in its last exit when it sold Berlin Packaging to Oak Hill Capital for $1.43 billion, 3.5-times more than it bought it for.

Shroogi said it was considering exits from a number of its current investments.

One potential exit which had been cited in the media was for Gulf Cryo. Shroogi said while it was always holding talks with banks and other parties about possible deals, there were no imminent plans to sell the industrial and medical gases firm.

Shroogi will take up the role of co-chief executive officer in June 2015, along with current chief financial officer Rishi Kapoor, when current head Nemir Kirdar retires.

Kirdar helped found the firm 32 years ago so his departure is a landmark in the company's history. It also highlights a key trend in business across the region - how do you successfully pass control from a patriarchal figurehead who has built up the firm to a new generation of leaders.

"The founder has built up a name for himself not only regionally but also globally, and he put the Investcorp name on the map," Shroogi said of Kirdar.

"But this is a normal change and a healthy change. All his hard work and planning is being transferred to the new team, and Investcorp will succeed because it has the foundations."

While the succession may not impact the firm, Investcorp and the private equity sector in general have changed significantly in the past five years as they deal with the fallout from the global financial crisis.

For Investcorp, it has substantially reduced the role of debt in its business, with its leverage ratio down from 3.7 times five years ago to around 1.2 times today, Shroogi said.

It also now keeps $1 billion of cash on its balance sheet so that it can pay off its outstanding debt if needed, which at the same time gives it the money to do deals if they materialise.

"When we see something, we can powerfully acquire that company because we have the liquidity in our hands," he added.-Reuters




Tags: Investcorp | assets |

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