Gulf Capital closes Fund III on $750m hard cap

The fund will focus on investments in mid-sized companies in the GCC region 

Abu Dhabi-based Gulf Capital has held a final close for its third private equity fund, GC Equity Partners Fund III, on its $750 million hard-cap, according to a statement from the firm.

The control-oriented growth buyout fund, which will focus on the Gulf Cooperation Council region, was launched less than a year ago with a target of $550 million and held a first close on January 2014 just below the initial target.

According to Gulf Capital, the fund was “significantly oversubscribed above its hard-cap”, and is the largest private equity fund raising effort in the Middle East over the last three years.
The fund will be looking to make investments of between $60 million and $100 million in 10-12 companies over a five-year investment period.

Gulf Capital itself is committing $150 million to the fund. “Every fund we launch, we like to be the biggest anchor investor and we raise money around our commitment,” Gulf Capital managing partner and chief executive officer Dr. Karim El Solh told Private Equity International.

Both regional and international LPs have invested in the fund, including sovereign wealth funds, pension funds, endowments, funds of funds, insurance companies, family offices and other institutional investors. Excluding the commitment from Gulf Capital, almost 60 percent of the fund’s investors are from the US, Europe and the Far East, which “really [shows] that the Gulf is becoming an attractive investment destination,” El Solh said, adding that the fund enjoyed a re-up rate of more than 80 percent.

“Not only did they re-up, many of them doubled or tripled their commitment – a big endorsement,” El Solh said.

The increase in fund size reflects the increase in deal size in the region, El Solh said. The firm will continue to focus on control buyouts of market-leading companies in defensive sectors, including healthcare, energy, oil and gas services, and social and hard infrastructure. Gulf will also be offering co-investment opportunities to LPs on larger deals.

The firm’s previous fund, GC Equity Partners Fund II, was a $533 million vehicle which closed in early 2010. The fund, which is 93 percent invested, has thus far yielded a net internal rate of return of more than 25 percent, and has almost tripled investors’ money, according to El Solh.

El Solh said investing in the GCC region could be hard work, as investors have to source their own deals. The fund has yet to make any investments – although it has made offers, and is expecting to close its first deal over the next quarter.

“It takes a lot of patience to close deals in the Gulf; you have to drink a lot of tea and coffee and socialise and build a relationship and a rapport and a bond before you actually transact,” El Solh said. “So one has to be patient and take the long-term view. That’s why local private equity firms are able to crack and penetrate the sector faster than global firms.”

The fundraise follows several successful exits for Gulf Capital over the past year, including the partial exit of Gulf Marine Services in March 2014 through an initial public offering on the London Stock exchange. Gulf Capital, which originally acquired an 80 percent stake in the company for around $62 million, netted a return of 10x, returning its entire second fund in the process, PEI reported earlier.