private equity dubai - 2009

8/9/2019 Private Equity Dubai - 2009

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Expanding growth opportunities in

partnerships with high net-worth individualsand family real estate businesses in the

Middle East

The 4th Annual Real Estate Investment WorldMiddle East 2008


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By nature, private companies are not transparent.

The difference in the GCC is that they are even more private.

They dont have independent directors and they dont have tofile public documents.

They are more private than privately-held companieselsewhere.

Youll get very large private businesses in other parts of theworld and theyll almost be institutions, whereas in the

GCC they are still very private.

Phil GandierA partner with Ernst & Young in Riyadh


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GCC family businesses are facing 3 most fundamental issues atthis point of unprecedented change, and Private Equity isuniquely positioned to deliver lasting solutions to each of them:

Issue 1: Restructuring and market strategy

Issue 2: Governance

Issue 3: Succession, Management & Boards

Role of PE in enhancing well-run privately owned businesses


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Issue 1: Restructuring and market strategy

Private Equity firms can bring in the know-how and bestpractices to help businesses refocus, restructure, and re-

prioritize their different competencies all in ways that theowners may not have thought of, so practically thinking out ofthe box.

Cont.. Role of PE in enhancing well-run privately owned businesses


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Issue 2: Governance

With decision-making processes often informal in nature,decisions are usually made by family leading members andtop-tier management

Investor relations are simply not a priority

Poor corporate governance levels

Consequently, Private Equity firms offer family businesses the ff:

Effective framework and control

Considerable time and energy in implementing rigorous andexternally-credible systems

Pushing the agenda for the introduction of better internalcontrols



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Issue 3: Succession, Management & Boards

For family businesses in the GCC, company ownership,management and board often all amount to the same thing.

Decision-making processes are therefore often informal anddistinctly authoritarian in nature.

Private Equity addresses all these issues; How?

Will find out in the ff. slides.



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Private Equity can deliver 2-stage management optimizationprocess for family businesses:

First stage

The final and complete separation of business owners frommanagement.

Second stage

Induction of professional managers and board members. Theboard takes a far more active role in the day-to-day running ofthe firm and consists solely of owners, representatives of thePrivate Equity investors, and industry experts.

What PE can do for family businesses Mgt Optimization


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Private Equity in conclusion

Can address these pressing issues through access to talent,which it can then successfully attract and retain through the

offer of attractive financial returns and a stake in the companyssuccess. The result is an alignment of the economic interests ofall parties in order to focus on maximizing the value of thebusiness.

Cont.. What PE can do for family businesses Mgt Optimization


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Private Equity firms offer more value than just capital, suchas connections, synergies, access to markets, and access topeople.

Private Equity firms bring to family companies financialinvestment. This investment can be used for expansion,restructuring, buying out existing shareholders or founders,and sometimes this move is initiated by the management ofthe company itself who may believe that Private Equity firmswill be better owners (labeled management buyouts).

How private equity add value to companies


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Private Equity firms impose needed discipline in financialprocesses, strategy development, upgrading seniormanagement. They strive for transparency. They formalizeprocesses, and become operational consultants in key areas.They inject best practices. However, Private Equity firms donot try to manage the company on a day-by-day basis.

Private Equity firms enable a family business to access globalnetworks, implement international-class governancestandards, successfully manage succession issues, createmanagement teams, and benefit from some of the

specialized business expertise

Cont.. How private equity add value to companies


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you find that family real estate businesses have a

very fragmented approach to what they are doing.When there is no focus, they under-perform and

their ability to create value is affected.

Abdulmohsen Al TouqGeneral Manager, Al Touq Company


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With private equity on board, family conglomerates in the GCCcan be refocused around a selected number of real estateprojects, with a parallel realignment of the companys capital base& the potential divestment of peripheral projects, mainly from theusually fat family land-banks, in order to release funds for furtherinvestment into core plus properties & value-added properties.

An advantage of the private equity model is that the criteria usedin making these assessments are relatively objective, and areconsistently used throughout the lifespan of the investment[internationally 10 years + 2 regionally 5 to 7 years + 2].

The current situation in the GCC is characterized by a meeting of

two portfolios. Families have their long-established randomly-selected properties heavily land-banked, and private equitybringing a cross asset class balanced portfolio, investmenttargets, define exit strategies and opportunistic acquisition.

How important is PE for family-owned property businesses


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Global networks of partners and business relations, offered byPE, enables family companies to leverage in order to addvalue to their investments. These deep networks areparticularly valuable when they can deliver cross-portfolioconnectivity. This is of particular significance as Private Equityoften target investments in specific areas of expertise, ratherthan simply across randomly limited available assets.

The overall impact in the areas of markets and strategy of apartnership between a Private Equity firm and a GCC familybusiness is a heightening of focus, growth opportunities andcompetitive ability.

The importance lies in this integration between two so-different managements, portfolios and business minds.

Cont.. How important is PE for family-owned property businesses


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when there are many family companies eager toexpand their activities and tap different networks,

this is when private equity firms add a lot of value.

Sheikh Mohammed Bin Faisal Al QassimiChairman & CEO of Manafa


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What PE cant do for real estate family businesses

Compensate on losing the gut feeling

Allow family members involvement; the platform of familyrelations

Maintain the entrepreneurial spirit of the family

Alignment of strategic benefits with other family businesses Accept high tolerance for risks

Uphold the Patriarch stimulus

Philanthropic activities left to future generations

Reduce, soft nor hard, development costs


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Private Equity puts a price-tag at the business, and familymembers may accordingly exit the business

Private Equity can create to family businesses anenvironment in which managers can act as owners andowners no longer need to act as managers

With Private Equity, the company and its owners will get

used to dealing and sharing the company with others They will improve their transparency, reporting, and

processes

They will separate their personal business from corporateaffairs

Private Equity firms focuses on maximizing the financialvalue of the firm, and thus maximize the benefit of currentshareholders when the IPO is launched

Private Equity has also been particularly useful for companieslooking to launch an IPO

What PE can do for family businesses


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Private Equity firms must be prepared to back up

their claims to add value. They must clearly showthat they are bringing something unique and

exceptional that could not come from within thecompany, or from anywhere else for that matter.

Jessica CanningDirector, Global Research at Dow Jones Venture-One


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Family real estate investment companies should only partner with best ofbreed private equity.

Private equity firms that can come in to a project at a start up stage or ata fully conceived stage and [always] add value (s).

Best of breed by geographic specialty and product specialty.

Geographical specialization makes sense.

Asset specialization makes more sense.

Especially as the competitive environment unfolds.

In easy days, one can do everything.

In days like these one needs to specialize.

There isnt a business called the real estate business. While,

Theres a hotel business

which is very different from a shopping mall business

which is very different from housing business,

which is very different from a warehousing business.

How will the potential rewards outweigh risks involved in suchbusiness models


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There are the old generals who are definitelyreluctant to open up their capital structure.

They feel it is an integrity issue; they dont wantanyone to mess with their company.

There is a real reluctance, and there will be areluctance, and this will continue even after twenty

years.

Abdulmohsen Al TouqGeneral Manager, Al Touq Company


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Family-owned businesses are

so entrenched and theyll never disappear, but I thinkthey will see the value that a private equity fund can

add the expertise in management, the industryknowledge, and the ability to find them partners, to

develop them and take them public.

Conclusion

Phil GandierA partner with Ernst & Young in Riyadh

private equity dubai - 2009

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