Investors in China, watch out. Your country and the rest of Asia may not be the hottest place on the planet for private equity deals. The place to be is quickly becoming the Middle East.
Dubai, UAE-based Abraaj Capital is approaching a final close on the largest ever Middle East buyout fund, Abraaj Buyout Fund II L.P., which could exceed $500 million when it formally closes at the end of the year, PE Week has learned.
The firm’s first fund of $116 million, Abraaj Buyout Fund, was fully invested by January 2005.
Jonathan Hall, senior vice president of Abraaj Capital in Dubai, says that the second fund would have the same focus as the firm’s first – mid-market management buyouts and leveraged buyouts in the Middle East. But Hall says the firm will look more broadly at doing deals in North Africa, India and Pakistan, “as opportunities arise.”
The second fund brings Abraaj’s total capital under management to about $1 billion, including a $113 million real estate fund and a $103 million special opportunities fund.
The only disclosed LP in the second fund is Dubai International Capital, the private equity investment arm of Dubai Holdings. Hall wouldn’t disclose specific LPs, but he says that investors include regional pension funds, financial management groups, insurance companies, banks and high net worth individuals.
Abraaj is not alone in being bullish on the Middle East and North Africa region. Intel Capital recently announced the formation of the $50 million Intel Capital Middle East and Turkey Fund to invest in startups in the Middle East. Intel Capital also announced that it would help the Saudi Arabian General Investment Authority establish a $100 million venture fund to invest in technology companies in Saudi Arabia and nearby countries (see PE Week, Nov. 21, 2005).
Meanwhile, Atlanta-based investment bank Arcapita recently launched a venture fund that must adhere to Islamic law. The firm secured a $40 million anchor investment from its parent bank in Bahrain. The rest of its funding will come from individual and institutional investors that do business with the bank (see PE Week, Oct. 17, 2005).
Also, earlier this year, investment bank Shuaa Capital’s private equity subsidiary, Shuaa Partners, had a first close on its inaugural fund of $160 million in the summer (see PE Week, July 18, 2005). That fund appears headed for a final close of about $200 million.
And just last week, Venture Capital Bank and Global Emerging Markets Group teamed up to launch a $250 million venture capital fund focused on small and mid-sized businesses in the Middle East and North Africa regions (see story, page 7).
Though there has been this build up of activity, Abraaj’s $500 million fund is making many investors stand up to take notice. Some sources in the Middle East suggest the current rise of new firms and fund-raising activity in the Middle East is the result of the vast wealth generated from oil in the region. Many sources also say that these funds represent a coming of age by the local investment community, which in the past looked towards the United Kingdom or the United State for assistance in raising and investing funds.
Hall says that the firm’s first fund invested in eight portfolio companies. Hall points to the June 2005 IPO of Aramex – a Jordan-based air freight and courier company that was listed on the Dubai Financial Market – as the most successful of the first fund’s two exits to date. Hall says Aramex returned $192 million, or 6.5x, Abraaj’s investment.
For the new fund, Hall says that investments will range from $20 million to $40 million in deals valued at between $40 million to $100 million. The firm has no specific sector focus. Hall says the key is to invest in “established companies, with revenue, good cash flow, and with strong growth potential.”
CEO Arif Naqvi and several of the firm’s directors, who are also investors in the firm, founded Abraaj in 2002.