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ABRAAJ-MENA'S LEADER IN PRIVATE EQUITY

ABRAAJ Capital is a premiere investment firm that specialises in Private Equity investments in the Middle East and North Africa (MENA) region. Headquartered in Dubai, the firm also selectively pursues follow-on investments in South Asia. Abraaj’s management has brought together some of the most compelling and successful transactions in the history of leveraged acquisitions across the Middle East. As of today, it has completed over US$ 500 million in private equity transactions, generating an internal rate of return of over 35 %over a nine-year period.

As an industry leader, Abraaj has pioneered institutionalising private equity practice in the region. With over US$180 million of assets under management, the private equity leader is setting trends and benchmarks for others to follow.

The Team

Abraaj has by far the most experienced private equity team of professionals in the region. Together, they have successfully completed over 16 exits in the past five years. The team has been responsible for deploying sizable investment funds into the region, which has helped create hundreds of new jobs, and has been directly involved in the expansion of regional corporates such as Aramex International, thereby playing an important role in the region’s economic growth.

Abraaj’s team members are from diverse backgrounds comprehensively representing the target region.

Funds Under Management

Today Abraaj manages two funds with assets under management in excess of US$ 180 million. A third real estate fund targeting a capitalisation of US$100 million has been recently launched. The two existing funds— Abraaj buyout Fund and the Abraaj Special Opportunities Fund— have yielded returns in excess of the targeted 30% per annum as of date .

The Abraaj Buyout Fund L.P. closed on June 30, 2003 with total commitments of US$ 116 million. In the six-month period up to December 31, 2003, the fund’s net asset value was up 58%, which translates into every US$ 1 of original Limited Partner investment being currently valued at US$ 1.58 (as audited by KPMG). The Fund is fully drawn down and substantially invested, with its first exit achieved back in April 2004, generating an IRR of 85%

The Abraaj Special Opportunities Fund L.P closed on December 31, 2003 with total commitments of US$ 32.55 million. The fund, which invests in listed equities on GCC and Levant markets, made a distribution equal to 45% of its total capital in April 2004, and the net asset value of the fund as of June 30, 2003 represents a gain of 64% on the undistributed capital. This translates into a fund IRR of 106% as of 30 June 2004.

The Abraaj Real Estate Fund L.P had its initial closing on June 30, 2004. The fund already has commitments of US$ 30 million and is in the process of making its first acquisition.

Acquisition Philosophy

Top management of Abraaj describes this performance as the proof of the opportunity that private equity offers to investors in the region.

Says chairman Sheikh Abdulrahman Ali Al Turki: “Abraaj has set a benchmark for Middle East private equity. Today it is known for its innovative deal structuring and execution capability. We will continue to build on this success and identify further opportunities that benefit our investors and the local economy as a whole.”

Abraaj’s acquisition philosophy is opportunity specific and not sector specific. The private equity firm acquires businesses with strong management teams in manufacturing, consumer distribution, logistics, banking and financial services, media, energy and other sectors that meet its investment criteria. The opportunity must offer attractive relative value and provide the potential for strong operating growth and substantial capital appreciation, within a 3-5 year investment horizon.

Due Diligence

Abraaj has a comprehensive proprietary due diligence process to identify country, industry, regulatory, business, management and currency risk and to structure the transaction appropriately to mitigate those risks. The process involves comprehensive review of the target company’s management team, products and services, operations, positioning within the industry and sector, risk and return, financial performance including cash flow potential, and leverage capacity to guide the post acquisition management strategy.

Value Creation

In order to realise the value created for its investors through acquisitions, the Abraaj management team identifies and aggressively develops exit strategies prior to making investments and then manages and continuously monitors them throughout the holding period.

The team has a very successful track record and has achieved multiple exits through conglomerate reorganisations and sales, including sales to strategic buyers and other private equity investors and trade sales to companies involved in similar lines of business.

Says vice chairman and chief executive Arif Naqvi: “Abraaj pays minute attention to its value creation strategies. We have a very detailed approach that we are constantly perfecting to achieve the best for our investors and investments. We believe that private equity investment constitutes a critical driver of change, which is now growing in influence in the region and will contribute significantly to further economic liberalization and development of the region.”

Four Factors

The four factors that Abraaj gives priority to in its process of creating value for its investments are:

• Add on acquisitions to enhance a portfolio company’s competitive position, market presence, or operational economies
• Leveraging operating capacity, distribution channels, or brand name franchises through product line extensions or expansions into new geographical markets
• Reducing costs by streamlining administrative functions and combining purchasing power
• Capitalising on favourable developments in the capital markets by de-leveraging or reducing debt service costs through private offerings, IPOs, refinancing, or other financial transactions.

Returns and Some Major Deals

The team has had an impressive track record over the past 10 years including the successful execution of two of the largest LBO transactions in the region, namely Inchcape Middle East and Aramex International. The leverage component under the Inchcape transaction was exceptionally high and was paid down in an accelerated manner over 14 months by divesting some of the individual business units acquired. Profit on exit was in excess of US$ 70 million equivalent to more than 14 times the equity invested.

In Aramex, Abraaj recognised the attractiveness of the company given its strong management team and cash flow generation and decided to take the company private through a tender offer on NASDAQ. Aramex was the first Arab company to list on the NASDAQ stock market, and Abraaj was the first Middle Eastern private equity player to take a Middle Eastern company private from NASDAQ.

The transaction was financed through a mix of senior and mezzanine debt along with equity from Abraaj and management. Under Abraaj’s ownership, and by working closely with management on add-on acquisitions, operational efficiencies and the introduction of enhanced employee incentives and stock option plans, Aramex’s revenues have grown at a CAGR of 20% and net income has risen at a CAGR of 53%.

Abraaj’s latest exit was on the Muscat Securities Market ( Oman’s stock market) where it exited its 17% holding on Oman National Holding Company with an IRR of 85%.