Abraaj Capital will invest in up to 15 small businesses across the Middle East this year as the private-equity firm seeks to become a global player among small to medium enterprises.
The Dubai company's newly acquired stake in The Entertainer, a publisher of discount coupons, is the 14th investment made by its US$650 million (Dh2.38 billion) strategic fund, Riyada Enterprise Development, which was set up in 2010 to invest specifically in small businesses across the region.
"We invest in companies with proven business models that are profitable today but where the real growth is ahead of them," said Tom Speechley, the chief executive of Riyada.
Last month, Abraaj bought Aureos Capital, a London-based specialist investor in small to medium enterprises (SMEs).
The combined entity now has $7.5 billion of assets under management, with about $2bn earmarked for fast-growing emerging markets.
Riyada and the Aureos assets now come under the same umbrella, creating what Abraaj deems "the world's largest SME-focused private-equity group in the high growth markets".
"Aureos has been [investing] in emerging markets for many years, and we have been doing it in the Middle East and North Africa for a few years.
There's a great geographical fit," said Mr Speechley.
"Being part of the broader Aureos platform will be of great significance for a company like The Entertainer. In a sense, it is the archetypal company that we would invest in."
Mr Speechley declined to disclose the value of investment in The Entertainer.
In the face of a burgeoning youth population across the Middle East and North Africa, SMEs have been talked of as a key area to provide jobs and growth in emerging economies.
In Dubai, about 95 per cent of companies are small businesses, employing about 40 per cent of the labour force.
But despite this growing importance of SMEs, bank lending to the sector has been weak, making funding from investors, such as Riyada, highly sought-after.
To deem an investment a success, Mr Speechley said his company would look to earn three to four times the amount of capital it invested in a small business.
"Sometimes you make a lot more and sometimes a lot less.
"There's no guarantees, but that's the level we're aiming for," he said.
Riyada will largely invest in any sector but prefers entrepreneurially run businesses that are suitable to adapt to new regional markets and can leverage new technologies to further their operations.
It was attracted to The Entertainer because it is still being led by its founder and the discount-voucher company has also been investing in its online business.
Riyada seeks investment from a range of sources, including institutions such as the European Investment Bank and the Overseas Private Investment Corporation, as well as high-net-worth individuals.
In conjunction with the Palestine Investment Fund, Bank of Palestine, Cisco and the European Investment Bank, Riyada announced its had raised a $36m fund this month to invest in Palestinian small companies.
Thimar Agricultural Investment Companyreceived was the fund's first investment in the Palestinian Territories.
After the completion of the buyout of Aureos, Abraaj operates in more than 30 countries, and manages investments in 153 companies with a team of 150 executives.
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