There’s a new firm scouting the country for buyout deals this month, and it’s not your run of the mill shop. TransOcean Capital, a group associated with Boston-based TransOcean Group, came into existence in mid-July to purchase companies on behalf of Gulf Investment House (GIH) of Kuwait and Gulf Finance House (GFH) of Bahrain.
These two institutions have been around for approximately three years apiece and are backed by prominent names in Islamic banking, including Kuwait Finance House, Bahrain Islamic Bank, Islamic Development Bank, as well as other Islamic institutions, individuals and families in the Gulf.
Spearheading the effort on behalf of Gulf Investment House and Gulf Finance House are co-heads John Beauclair, executive director, and Glenn Fortin, managing director. Fortin came into contact with GIH as an attorney at King & Spalding in Atlanta as GIH became interested in U.S. investing, beginning with real estate. Beauclair previously worked for Equis Financial Group, which, among other things, managed assets for institutions in the Gulf and sponsored LBO deals. In his position, he became acquainted with Islamic bank Kuwait Finance House (KFH). A few professionals from KFH later spun out and created GIH and contacted Beauclair to open the TransOcean office with Fortin.
TransOcean has received commitments from its backers that will allow the firm to make two or three acquisitions per year, each with an enterprise value in the $50 million to $100 million range. Although the commitments will not come out of a traditional private equity fund, Fortin described the financing situation as a “hybrid of permanent capitalization from our backers that has some fund-like elements, along with extensive co-investment commitments.”
The firm’s industry focus and deal structure, however, will be somewhat tricky. Every deal must be compliant with Islamic investing principles. The transactions must avoid traditional interest bearing debt and tiers of capital, and several industries are completely off limits. TransOcean will work closely with an Islamic certification committee on structuring and financing deals with Islamically acceptable leverage. Fortin said that means they will start out using senior leverage components that are sale leaseback based and work with attorneys and advisers to develp other products to get leverage ratios as high as possible. He acknowledges that the point of leverage will never be as high as that of a more traditional LBO firm.
Secondly, the firm must make sure it does not get involved in any deals related to pork, pornography (which includes some forms of entertainment that might not be considered pornographic by U.S. standards, Beauclair said), gaming, alcohol, tobacco, firearms and traditional financial institutions.
Sticking to these parameters, the firm still has a broad range of industries it will consider. TransOcean will look for manufacturing, consumer products, specialty chemicals and technology companies that have clear, historical, sustainable cash flows, Fortin said.
“We’re flexible across industries within the Islamic and size parameters, assuming we can achieve the leverage we’re looking for,” he added.
Come on Over
In their three years of existence, GIH and GFH have been involved in a variety of investments in the Gulf region, including real estate and private equity funds. Their experience in the U.S. has thus far been confined to structured finance and real estate. Although they have been considering a U.S. private equity vehicle for some time, Fortin said they have been nervous about valuations over the past few months.
“Upon the stabilization and rationalization of valuations over the past six months they became more comfortable and pulled the trigger by hiring John and me to open the Boston office,” he said.
As for logistics of the deal-making process for a new firm, Beauclair and Fortin are hitting the streets this month in search of targets, meeting with middle-market investment banks, accountants, deal brokers and lawyers to get their name out and to reel in the deals.