UAE’s Gulf Capital plans fourth private equity fund amid diversification push

Firm to launch next raise in first half of 2020 following Medica healthcare investment this week

Karim El Solh, CEO of Gulf Capital, which plans to launch its fourth fundraise next year after snapping up 70% of Medica Holding in May. Satish Kumar/ For the National 

Gulf Capital, one of the Middle East’s largest private equity firms, plans to launch its fourth and biggest fund in 2020, as it seeks to grow assets under management to $5 billion (Dh18.3bn), from $3bn, over the next five years, its chief executive said.

"We want to be invested in all the fast-growing sectors – be it fintech, payments, healthcare, logistics, food distribution – we are building a portfolio of assets, and want diversification," Karim El Solh told The National in an interview.

Privately-owned Gulf Capital will go to market with its fourth raise in the second or third quarter of next year, Mr El Solh said. The new fund is likely to be larger than the $750 million GC Equity Partners Fund III, which is around two-thirds deployed following its majority acquisition of regional health aesthetics company Medica Holding for an undisclosed sum this week.

The plan is to deploy the remainder of that fund by the end of 2019. “It’s hard to say exactly when as [deals] can take a long time to bake,” the chief executive added. He expects the fund to make between three and five more investments this year.

Gulf Capital acquired 70 per cent of Medica and is in talks with prospective partners to form two joint ventures – one in Saudi Arabia and one in Africa – to help expand Medica outside the Middle East. In addition, it expects to conclude two bolt-on majority stake deals in pharmaceutical distribution firms before the end of this year, to broaden coverage of Medica’s products and services across Asia, Southeast Asia and Africa.

Health care investments constitute 15-20 per cent of deployed capital in Gulf Capital's third fund, as the firm seeks investments in companies that lie at “the cross-section between consumer and social infrastructure healthcare [hospitals], such as medical technology, diagnostic imaging, aesthetics and more”.

Appetite for health care investment is intensifying as demand for medical services rises due to population growth and - in the GCC - the expansion of mandatory insurance coverage.

For the new fund, Gulf Capital expects to look beyond the GCC to deploy capital, especially in emerging markets such as Asia and Africa, although the region will remain its key focus.

“It’s not easy to raise money at the moment,” said senior managing director Mohannad Qubbaj, but the high yields available to investors in the Arabian Gulf and other emerging markets, the return of higher oil prices after a four-year lull, and robust corporate governance procedures at Gulf Capital are helping to lure investors, he added.

The number and value of private equity deals in the Middle East and North Africa has declined steadily since 2014 to 17 deals totaling $350 million in 2017, according to figures compiled for The National last September by alternative assets data provider Preqin.

Between 2014 and 2015, the number and value of deals more than halved, as the drop in oil prices hit the region’s hydrocarbon-dependent economies and impacted multiple industries including private equity, while the value of exits fell to $52m in 2017, from $1.9bn in 2014.

Mr Qubbaj said oil and gas-related investments constitute around 15 per cent of Gulf Capital’s portfolio, compared to 50 per cent eight years ago. “We are embracing the new economy – technology, healthcare and so on – which we believe offers attractive valuations,” he said.

To compound market challenges, the high-profile collapse last year of Abraaj Group – once the region’s biggest buyout firm which claimed to manage almost $14bn of assets – and subsequent arrests of its founder Arif Naqbi and other executives on allegations of fraud and other charges, have made investors skittish.

“There has certainly been a ripple effect, because Abraaj operated right across from Latin America to Asia,” Mr El Solh said. “But one company does not make an industry and you have many other players who are leading in governance, controls and reporting, and delivering good returns to investors, and I think investors are able to differentiate between companies.”

Mr El Solh told the Mena Investment Congress in Abu Dhabi in February that Gulf Capital will publish its first-ever externally audited controls report this year showing the flow of funds and how money is spent – something that is not common practice for Middle East firms other than banks. It has also shifted to quarterly rather than annual reports.

“We are now over-reporting, over-interacting, over-communicating and it’s expensive and arduous, but we need to do it,” Mr El Solh said at the time.

The chief executive dismissed as a “rumour” a media report this month that said Gulf Capital and fellow Abu Dhabi-based PE firm Waha Capital have held exploratory discussions over a potential merger.

"There is no need to buy other firms because when you are actually gathering more investments, exiting smaller ones and launching bigger funds you are actually eating market share and consolidating that way," he told The National.

Gulf Capital has completed eight investments and five exits in the last 18 months – “it’s been a profitable year for us”, he said.