GFH in talks for further education, tech acquisitions in 2018

Bahrain-based investment bank expects to have around Dh1.5bn of capital to invest during 2018, says chief executive Hisham Al Rayes

GFH's chief executive Hisham Ahmed Al Rayes is in talks to acquire new education assets after the investment bank sold part of its schools portfolio last week. Phil Weymouth / The National

GFH Financial Group, the Bahraini Islamic investment bank, is in talks to acquire new education assets after it sold part of its schools portfolio last week.  It is also looking to acquire a UAE technology platform and a regional bank.

GFH announced last week the sale of a US$150 million stake in its $300m GCC educational portfolio to UK schools provider Inspired, marking the latter’s entry into the Middle East.

Hisham Al Rayes, chief executive of GFH, said the bank would look to do “multiple” deals with Inspired in the

premium education space, but is also eyeing independent

acquisitions.

“We will look to do multiple acquisitions with [Inspired] as they are looking at schools in Kuwait, Bahrain and have been in negotiations with several players in the UAE. We stand to benefit from their systems and associations,” Mr Al Rayes said.

“We are also looking at another acquisition in the first quarter of 2018, in Bahrain, and at other educational platforms outside the region. These may or may not be with Inspired.”

GFH, which is listed in Bahrain, Kuwait and Dubai, completed around $50m per year of education-related acquisitions over the past three years.

Education is an increasingly attractive choice for investors as they search for non-cyclical, income-generating assets that are cushioned from macroeconomic and political headwinds.

Population growth in the GCC is spurring new investment opportunities in the region’s education sector and as the sector matures, new opportunities in education support services such as textbook distribution; education infrastructure; and information technology will emerge, according to Strategy&. The GCC population is projected to reach 65 million people by 2030, a third of whom will be under the age of 25.

“We see strong demand and our investors are happy with the performance. It’s a safe business line we have a strong footing in, and we would like to capitalise on our success to be one of the leading investment firms in the region in this sector,” Mr Al Rayes said. GFH expects a net profit of up to $50m to be reflected in its 2017 and 2018 financial results as a result of the deal with Inspired.

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However, it wants to focus on the mid-market rather than premium schools sector where Inspired operates. The planned Bahrain acquisition will be “mid-to-premium”, although GFH would not discount premium if the right opportunity arose.

“Inspired are looking at another premium school in the GCC which, if we get the opportunity, would be a great asset to come alongside them on,” Mr Al Rayes said.

GFH registered a net profit of $25.09m for the third quarter of 2017 compared to a loss of $7.58m for the same period in 2016, and expects a similar performance for the final quarter and into 2018, the chief executive added.

“So far we have raised in excess of Dh1 billion to1.5bn – a major achievement given the current circumstances of the market – and are looking to maintain and increase this level of fundraising next year to allow us to be more active in the region.”

As well as education, GFH is eyeing acquisitions in the technology and banking sectors as it expands on the back of improved profits. The prospective technology deal is “a UAE company with a presence in the GCC and beyond”.

“There are not many success stories in the region of people making money [from tech],” said Mr Al Rayes.

“But we have seen an improvement over the last 18 months, with investors making it part of their mandate and successful exits for some of the smaller platforms like Souq.com, from international players who want access.

“Hence, we feel it is the right time to go into this field and are doing due diligence on this transaction,” he said. A deal is targeted for the first quarter of 2018.

Meanwhile, GFH is in advanced talks to acquire a local bank, “to add a new line to the business”. GFH has previously been in talks to acquire a stake in Dubai’s Shuaa Capital, Bahraini Al Khair Bank and one other bank, but the Shuaa talks broke down this year and Mr Al Rayes declined to comment on why.

“We definitely want to undertake acquisitions in this domain and have been in several negotiations with players that would give us access to a skillset, client base and AUMs [assets umder management] we don’t currently have,” he said.

“However, there are few companies that satisfy our criteria in the region and a lot of other people are trying to get to them. We don’t want to throw crazy money there because otherwise it will not make sense.

“We are in advanced talks with one GCC player, and are shortlisted, but it depends on the final pricing and terms. It's taking a long time,” he added.