Money Men

One need only look at the amount being paid by operators in the region for acquisitions to realise there is a large amount of liquidity in the telecoms sector. Delta Partner Group, an investment and telecoms advisory company, is looking to capitalise on these surplus funds quite literally.

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By  Alex Ritman Published  September 5, 2006

|~|Rogier-van-Driessche.jpg|~||~|“We are looking to launch an investment fund that builds on the same type of thing that happened in the European telecoms market 5-7 years ago,” comments Kristoff Puelinckx, managing partner of Delta Partner Group, from his office in Dubai's Internet City. “The value chain in the telecoms sector in this part of the world is changing and we are looking to partner with third-parties within the chain,” he adds. What Puelinckx is referring to is his company's aim to embark on a roadshow between early October this year, through to Mid-November seeking between US$75 million and US$100 million in order to commence active fund management activity in the telecoms sector before the end of the year. “The investment fund will be on a venture capital basis and will primarily look at investing in younger companies,” explains Puelinckx. The fund management company is called Delta Capital, fully controlled by Delta Partners, but operating as two separate legal entities, though with the same management and shareholding structure. Puelinckx says that Delta Capital has already identified the first investments, which are a combination of co-investment opportunities in some of the upcoming licence award processes, as well as direct investment in smaller players, emerging across the value chain. “The increased deregulation and resulting competition is leading to an opening up of the value chain, which in turn gives rise to a range of specialised players in the telecoms space, partnering with the operators to strengthen their competitive positioning, differentiation and efficiency,” says Puelinckx. “In this respect we see very significant opportunities on the distribution and retail side in the short term, but in the next two years, also in areas like content and applications, engineering, indirect access (and even mobile virtual network operators).” Currently, much of Delta Partners' activities involve offering advisory services, and the company has already been involved in helping with bid processes for greenfield licence opportunities in the telecoms sector in the region. “There are real synergies to be found between research and advisory; and investment, particularly if it is industry focussed,” suggests Rogier van Driessche, partner at Delta Partners. “With these types of competencies, it is easier to become much more involved in an investee company, which is a positive thing,” he adds. Delta Capital has applied for, and obtained, a Class B banking licence in Bahrain, where the company is incorporated. Apart from being licensed to offer fund management services, Delta Capital's Class B licence also provides a concession for the company to provide full corporate financial services. “This is another angle to the business with which we believe we will be able to provide target investment companies (investees) with full corporate finance services apart from being able to provide corporate finance services to other clients,” Puelinckx explains. ||**|||~||~||~|Corporate finance services will range from traditional corporate finance such as supporting equity and debt raising, to financial restructuring, to M&A support for both smaller as well as larger players in the industry. Delta Partners already has already incorporated a partner and shareholder into the company who is helping with the set-up of the fund and the fund raising. His name is Nezar Al-Saie, a Bahraini national with over 30 years experience in investment banking and private equity, and who is currently a board member of various financial institutions and telecoms companies. He is also a senior financial advisor for Lazard in the region. “Regional markets have higher valuations than mature ones and mature operations,” says van Driessche. “The average multiple in regional markets is around 7.8 times EBITDA, while it is around 5.5 times EBITDA in mature markets. Investors are interested in focussed play, and they like to be able to choose where to invest,” he adds. The rise of a targeted investment culture in the Middle East appears to be quickening in the current environment given the incorporation of other venture capital-style organisations, which also happen to be attracted by the growth occurring in the region's telecommunications sector. Gulf Capital, for example, is an alternative investment company focused primarily on investing locally raised capital in the GCC region. The company was incorporated in Abu Dhabi this year and was established with a capital base of AED1.225 billion (US$330 million) sourced from 300 of the most prestigious institutional and individual investors in the Gulf. Gulf Capital is focused on acquiring sizeable and controlling stakes in highly profitable and rapidly growing companies within a select number of emerging industries in the GCC region, with a view to growing and exiting these investments profitably. Gulf Capital is rapidly emerging as a leader in the field of private equity investing in the Middle East. In July, Gulf Capital made its first investment in an investee company since its incorporation in May, the investee company being Itsalat International (i2), the largest mobile phone distributor in the Middle East with operations in over 20 countries. Gulf Capital invested an amount of AED150 million in i2, through which it expects to receive unique exposure to the fast growing telecoms industry throughout the Arab world. “As a 'partner in growth', our aim is to acquire sizeable stakes in premier companies which have a leading market share, strong management and an outstanding growth potential in a promising industry. i2 fits exactly these investment criteria,” comments Gulf Capital's chief executive Karim El Solh. Given i2's recent announcement of a content aggregation deal with mobile handset giant Nokia, Gulf Capital's investment in the Middle East phone distributor appears to be in line with Puelinckx's view that great opportunities lie in the investment in third-party providers within the telecoms value chain. “New entrants coming through to the market have a new way of thinking, with specialised players also coming into the market and adding value,” says Puelinckx. “The UAE's new entrant, du, is looking for strategic partners more and more, and I think this clearly indicates the way the industry is moving across the region,” Puelinckx adds.||**||

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