Shooting to thrill

Faisal bin Juma Belhoul has spent the last few years restructuring his father’s family empire. Now, he tells Richard Agnew, he plans to use that experience to turnaround other regional businesses.

  • E-Mail
By  Richard Agnew Published  March 26, 2006

|~|36-DSC_0062-200.jpg|~|SPENDING SPREE: Belhoul says he is eyeing firms in the telecoms, investment and retail industries.|~|Faisal bin Juma Belhoul has spent the last few years restructuring his father’s family empire. Now, he tells Richard Agnew, he plans to use that experience to turnaround other regional businesses. It’s not often you are offered a game of pool in the office of a prominent UAE businessman, but Faisal bin Juma Belhoul isn’t someone who sticks to tradition. The Emirati has spent the last few years modernising and selling off parts of his father’s family empire, earning millions of dollars along with way. But his best deal so far could be the few hundred dollars he spent at the local sports shop, so he could shoot some pool with potential investors. “It’s part of our philosophy,” the 30-year-old says. “We’ve probably struck more agreements over this table than anywhere else.” Belhoul Jr. has succeeded in transforming the family firm since his father asked him to take over in the late 1990s, but it hasn’t all been fun and games. After its formation in 1969, the company built up a range of investments in sectors from construction to children’s clothing, but was finding it increasingly hard to manage each unit at group level. Belhoul’s answer was to turn the firm into an ‘asset management company’ — essentially offering each business financial and managerial backing, but taking a step back from their day-to-day affairs. He then went on to create a private equity arm, Ithmar Capital, to channel funds into each unit, increase their profitability and, ultimately, prepare them for sale. “I could see that most traditional merchant family businesses, by being so diversified, were finding it difficult to excel in each specific sector,” Belhoul explains. “That made us think about how we could be as diversified as possible but also deliver results in each sector. “The conclusion we came to was to convert the family business into an investment office, where we could maintain diversification by investing in different funds, and at the same time be able to have specialised managers overseeing those investments. “However, we realised in the early 2000s, that there was noone available to manage such a portfolio, and that was the trigger for the creation of Ithmar.” Belhoul now focuses on Ithmar Capital full time, and has set his sights beyond the confines of the family firm. The investment group’s first job was to raise money from within the Belhoul group to plough into the businesses it manages, but last year, he began wooing GCC investors for a second round of funding to invest in other regional firms. His cash-raising technique would also appear to have paid off — Belhoul says the fund is set to close with over US$250 million in the bank, much more than it originally targeted. “The new fund will invest in various opportunities in the region, whether it be family businesses, expat companies, international companies expanding in the GCC, or privatisation opportunities coming from the increasing openness of regional governments,” he says. “The indications we are getting is that the fund has been over-subscribed. When we launched it, we had a US$150million target, but the response has prompted us to raise the ceiling. The commitments we have received so far amount to more than US$250 million.” That might be small change when compared to the hundreds of billions of dollars being splashed around by global private equity firms, but Belhoul says it is more than enough in a region where buy-out opportunities are more thin on the ground. It also hasn’t stopped him from mixing with some of the giants of the international investment space. 3i’s chief executive Philip Yea, for example, has formed an alliance with Belhoul, through which the UK group advises Ithmar on best practices, and has pledged to invest in Ithmar’s latest private equity fund. This would be 3i’s first foray into the Arab World, other than to raise cash from Gulf-based investors. “Although it started off as a joint venture, it has evolved into a fully-fledged investment alliance,” says Belhoul. “There’s a major change happening in the interest levels of international private equity firms in the region. “Historically they have just looked to raise money from the region, and had people visiting here every few months for fundraising. But it’s slowly changing. Pure-play private equity firms have been very keen to look at the region, and as a result we have been able to get the likes of 3i to associate with us. However, they are aware that private equity is a local business and requires a lot of local expertise.” One thing Belhoul says helped secure the deal with 3i, as well as agreements with other investors, was Ithmar’s previous experience in taking over the family businesses. “You find that a lot of regional private equity firms have been initiated by someone with an individual track record, but you cannot really assess their collective track record because they are all start-up firms,” he says. “The investor therefore takes an additional element of risk in making a decision on whether they can work as a team and create value. “That, though, has been mitigated with Ithmar because we managed to demonstrate two years of value add in the portfolio of the family companies, so we managed to show how we can grow companies and address challenges, as well as restructure them.” Belhoul adds that in the Middle East, investors often have “overly high expectations” of the management within the firms that they target — something he's been keen to avoid. “We know how to work with management with the skill sets available in this region,” he says. “We really have developed the art of identifying the right calibre of management that we can attract. Some of the investors in developed markets would tend to expect higher management levels than actually exist.” Belhoul says the regional private equity sector is still evolving, although almost thirty firms have been set up in the last few years and some market watchers have questioned whether the best deals have already been done. Although oil price rises and the region's booming economy mean that there is plenty of cash available, he says the main issue facing regional investors is where to actually spend it. “We are very cautious about the companies we choose to invest in,” Belhoul says. “All we seek to do is three to four deals per year at the most, and to deploy US$25 million to US$40 million per deal. So effectively, we are trying to choose from a universe of 200 applicable deals per year, and putting our money to work in one to three of those." He adds that the advent of greater interest from big international investors may not necessarily prompt an increase in the size and amount of acquisitions. “Is there the size of deals to warrant a US$10 billion fund in this region? That is a challenge for the likes of Blackstone, 3i or Carlyle. “A US$250 million to US$500 million fund is more than enough for this region, and probably is even a stretch because the managers would be under pressure to deploy more capital. “If you want to do more deals, you need to take the number one choice, as well as number two, three and four — and the chances of number four being as good as number one is less.” Keeping investors happy is another thing, however — especially in a region where the economy is growing rapidly and firms' backers want to see quick returns on their money. “The industry tends to benchmark a return expectation of 25% and we like to under-promise and over-deliver,” says Belhoul. “We tend to keep the expectations of the investors aligned within industry standards, although we believe that the current markets are offering more lucrative returns. “In our base case scenario, we factor in a minimum return of 25% internal rate of return (IRR). But the upside is something we focus on. With a lot of the deals, we like to see an extra 10 or 15%, and sometimes beyond that. It’s a good time to invest in private equity,” he adds. Belhoul says another challenge facing regional private equity firms is the need to secure the “right combination” of investors — as well as to have a clear exit strategy worked out. Belhoul admits one of his first moves went out to seek investors that had the right connections and could alert him to the right deals. “This region is notoriously relationship-based," he says. “Having the right distribution of shareholders is a very important component when you come to create a fund. “You need to make sure you have the backing of political or government-backed institutions across the GCC, as well as the right family businesses and private investors.” He adds that planning a deal from start to finish is just as important as attracting the money. “As a private equity player, you need to have a clear outline of the story of the deal you are entering into, from entry to exit. You need to know how you will add value, what are the key areas of focus you need place resources in, and have a clear plan.” Belhoul certainly has a clear plan. One of the Belhoul Group’s medical businesses, PharmaWorld, has already been sold off to a local partner at an internal rate of return (IRR) of 45%. Two more are also set to be exited this year in return for big profits — both through trade sales. Once his second fund is closed in the next few weeks, Belhoul also has his eye on a number of acquisitions, particularly in telecoms, oil and gas, education and retail. He adds that once the majority of that fund is deployed, a third fund will be launched in "three to four years". Understandably, the attraction of having hundreds of millions of dollars to spend is also likely to keep Belhoul himself in the private equity game for a long time after that. “It is definitely a responsibility, as well as a challenge,” Belhoul says. “As the fund's managers, we have aligned a significant portion of our own wealth alongside this fund. We are very much exposed to it, along with our investors. “I think it is very important to be wise in deploying this capital, and to be very patient. A lot of investment arms are under pressure to deploy capital faster, because the money tends to be all sitting in their bank accounts from day one. He continues: “But that is the nature of private equity. The logic is simple — you wouldn’t want to spend big in a vintage year when the valuations are high, and then when the market corrects a little bit, you have difficulty selling those deals and are stuck with your exposure. “An investor in Ithmar would not have that problem.”||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code