Abraaj Capital, the biggest private-equity firm in the Middle East, is pinning its hopes on the success of small businesses all over the world with the acquisition of Aureos Capital, a London-based specialist in finance for small to medium enterprises (SMEs).
The combined entity, which Abraaj will own 100 per cent, will have about US$7.5 billion (Dh27.5bn) of assets under management, after the injection of $1.3bn of assets currently with Aureos.
Of total assets, about $2bn will be in investments in fast-growing emerging markets, making the enlarged group "the world's largest SME-focused private-equity group in the high growth markets," Abraaj said.
It will operate in more than 30 countries, and manage investments in 153 companies with a team of 150 executives.
The deal, announced at Abraaj's Dubai headquarters yesterday, will give the group a presence in Latin America and South East Asia, as well as significantly expanding its business in Africa.
The two sides aim to clinch the deal by spring, said Mustafa Abdel-Wadood, Abraaj Capital's chief executive. "We are going through the regulatory channels."
Mr Abdel-Wadood declined to give any financial details of the deal. "It's a private transaction and we are a private company. Abraaj prides itself on transparency but we cannot comment on the deal consideration due to reasons of confidentiality," he said.
But the deal did not involve Abraaj raising any new debt, he said.
A company source said financial details had been shared with relevant stakeholders.
Aureos was spun off from the overseas investment arm of the British government, the Commonwealth Development Corporation (CDC), in 2002, and then bought by its existing management in 2008.
At a simultaneous announcement in London, Arif Naqvi, the Abraaj founder and group chief executive, and Sev Vettivitpillai, the Aureos chief executive, declined to provide financial details.
"The expanded Aureos platform will retain its inherent structure and team within the Abraaj Group," Abraaj said.
The proposed deal has been strongly supported by Aureos's core investors, including CDC, which retains investment stakes in Aureos funds, though not in the partnership that owns the company.
"There is some overlap of investors in Abraaj and Aureos," said Mr Abdel-Wadood.
Mr Naqvi said: "Both Abraaj Capital and Aureos are home-grown emerging markets' private-equity firms with a similar philosophy and shared values. This acquisition is an important step in our expansion into Latin America, South East Asia and sub-Saharan Africa and a new chapter in the Abraaj Capital story".
Mr Vettivitpillai added: "I look forward to working within the Abraaj Group to further expand the Aureos focus on the SME segment across all emerging markets and integrating our business platforms to further enhance investor returns and long-term value for all stakeholders."
In the wake of the Arab Spring, SMEs have been singled out as an important contributor to growth in the Middle East and North Africa.
Nasser Saidi, the chief economist at the Dubai International Financial Centre, said: "On average across the Middle East, SMEs account for 80 per cent of all regional businesses and 30 per cent of GDP. They are critical for economic diversification and job creation, and represent the bulk of where we can create new jobs. If you're looking for growth you've got to go for SMEs."
Dahlberg, an international economic strategy think tank, said recently: "SMEs are a fundamental part of the economic fabric in developing countries, and they play a crucial role in furthering growth, innovation and prosperity. Unfortunately, they are strongly restricted in accessing the capital that they require to grow and expand, with nearly half of SMEs in developing countries rating access to finance as a major constraint."
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