Less than a year after acquiring Amundi’s North African private equity fund, Dubai-headquartered Abraaj Capital went one better: it acquired a whole GP, lock, stock and barrel.
By annexing Aureos Capital, Abraaj boosted its overall assets under management to more than $7.5 billion. More importantly, it gave it an on-the-ground presence in a range of key emerging markets where it previously had no exposure. Its remit previously comprised the Middle East and North Africa, with additional investments in Southern Asia (chiefly Pakistan) and Turkey; Aureos adds exposure to other parts of Asia, sub-Saharan Africa and Latin America.
In total, that equates to more than 30 countries – with four ‘hubs’ in Dubai, Singapore, Nairobi and London – and 153 current investments. Abraaj’s SME-focused RED platform will be brought under the Aureos banner, while Abraaj’s buyout funds will continue to operate as normal – but with additional capability in new markets.
Abraaj founder and chief executive Arif Naqvi and Aureos chief Sev Vettivetpillai told Private Equity International that the deal had been in gestation for six months. Aureos had apparently received approaches from several other suitors, including a large US-based GP and development finance institutions (the latter would have represented a return to its roots, given Aureos was once part of UK state-backed CDC group). But Vettivetpillai said Abraaj had been the best fit, offering a similar investment approach and a complementary geographical presence.
Naqvi said the negotiation was a “very consensual, non-intermediated process,” with six senior personnel involved from each side. However, both declined to reveal the price tag. Naqvi said only that the deal was being funded using capital from Abraaj’s balance sheet, with no additional debt being raised.
That’s a shame, since the price paid will inevitably have an impact on how good a deal this turns out to be, for both sides. However, it is clearly a little sensitive, politically: Aureos was sold by CDC Group to its managers in 2001 for an undisclosed amount, and if it became possible to quantify the management team’s profit, it might prove controversial. Look at what happened when CDC sold 60 percent of Actis to its managers for just £373,000 in 2004.
Still, the deal looks a good strategic fit for both sides. Aureos will be able to tap into the network and capabilities of its larger parent, while Abraaj gets quick and easy access to local specialists in previously untapped markets.
But perhaps the key to the success of the deal will be the extent to which the two firms can actually tap into the synergies they believe exist within their combined portfolio. A specific team, six or seven strong, will focus solely on exploiting these opportunities. “They will look at where tangible value can be created through synergies and by developing links with other companies within the portfolio. Just by doing that, we think we can deliver out-sized returns,” says Naqvi. They will also help Abraaj learn from its junior partner, he added. “There will be no ego – if Aureos does something better than us, we’ll embrace it. It’s about fine-tuning the business to make it as efficient and effective as possible.”
For investors, Naqvi hopes the deal underlines the firm’s ambition and capability. “We have created a clear picture for LPs. If you want to invest in emerging markets, whether that’s through private equity, SMEs, or real estate, commit your capital to us and we will deliver substantial returns. There is no alternative,” he said. With this deal, and a new $2 billion buyout fund that’s due to close in the next few weeks, Abraaj should not be short of firepower.