UAE-based alternative asset manager Gulf Capital is targeting the end of the second quarter to close its second credit and mezzanine fund, Gulf Capital chief executive officer Karim El Solh told Private Equity International.
The firm expects to close on its target of $250 million or higher, he said.
Gulf Credit Opportunities Fund II has a hard-cap of $300 million and held a first close on $175 million in early January. It will pursue the same strategy as its predecessor, offering financing to mid-market companies and private equity managers in the Middle East, North Africa, Turkey and Sub-Saharan Africa.
Gulf Capital announced in late February that it had partnered with Africa-focused investment bank Serengeti Capital to pursue credit and mezzanine opportunities in sub-Saharan Africa through the fund.
The fund plans to make 10-12 investments of $15-30 million each in companies that generate revenues of $25-250 million in non-cyclical growth sectors, it said.
It will target a cash yield of 8-10 percent and internal rate of return of 18 percent on a fund basis, which is close to the track record for its first credit and mezzanine fund, El Solh said.
Gulf Credit Opportunities Fund I closed in 2013 on $221 million and is fully invested.
The firm has about $4 billion of assets under management, with about $1.5 billion in private equity, $2 billion in real estate and $500 million in credit and mezzanine finance.
With more than $1 billion in dry power split between private equity and credit “now the focus is on execution from these current funds. These are going to be very interesting vintages. There is limited liquidity in the system and we are seeing more deals and more opportunities, and we being very opportunistic,” El Solh said.
In private equity, it is investing through its third fund, a $750 million vehicle that closed in October 2014. The firm is increasing its focus on consumer sectors, including bulk distribution, education and healthcare and business services, as well as logistics, and energy on an opportunistic basis. “We believe there is some long term potential in that space,” El Solh said of the energy sector.
The firm acquired Misr Glass Manufacturing, an Egyptian glass container maker for the food and beverage industry, in February through its portfolio company Middle East Glass (MEG), also based in Egypt. MEG was its first transaction through GC Equity Partners III.
“We are looking at a number of investments for fund three right now,” El Solh said, including platform deals and add-ons.
The firm typically targets 10 companies per fund, and GCEP III will look at investments with an average ticket size of $75 million, up from $50 million for its previous fund, a 2009-vintage, $553 million vehicle.
“We are in the control growth buyout business. We like to back companies that are growing fast and to influence their growth. We put in a finance partner and an operating partner and an executive chairman so we are very hands on investors. To be able to acquire controlling stakes in business that are market leaders you have to write bigger equity cheques lately,” El Solh said, adding that the fund can co-invest alongside its investors to undertake bigger transactions.
When asked about the availability of control deals in the Middle East, El Solh noted that for a lot of its transactions acquiring a majority stake was a precondition for a discussion, and about 90 percent of its deals were for control stakes.
GCEP II is 95 percent invested, and in terms of exits, “from here on out as Fund II matures we expect one or two exits per year,” El Solh said.
In March 2014, the firm listed oil and gas focused company Gulf Marine Services on the London Stock Exchange and retains a majority stake.
The firm is interested in international initial public offerings and local trade and financial sales, El Solh said.