Case 2: Abraaj Capital

IIM RANCHI | PEVC

Group 9
AJAY SINGLA| M005-17| 9417052698
ROHAN GANATRA | M169-17| 9408055681
JULIEN DE CRECY| STEPPG01-18|+916206810473
 a) How is private equity investment in Middle east different from Europe or USA? How

has Abraaj adopted the traditional model?

Private equity in middle east was still in dormant stage till 2007. Most of the funds raised were

less than $100 million and the maximum was $150 million. There were 29 PE firms with 38 PE

funds and the size was $4.65 billion. The five-year CAGR from 2002 to 2006 was 90% compared

to 42% in US and 40% in Europe. Despite this penetration was low as it accounted for only 0.2%

of GDP compared to 1.7% of US.

Reasons for recent expansions of PE

 Favourable local macro-environment

 Broader economic transformation

 Initiatives taken by regional government

 Increase in awareness after Abraaj’s takeover of Aramex in 2001

 Increase in M&A transactions with CAGR of 80% and value $64 billion

40% growth in stock market compared to 15% in US and 23% in Europe

 35 IPO’s in first six months of 2007

 New opportunities in infrastructure, energy and water projects

 Increase in FDI to $127 billion

 Privatization opportunities

 Dynamic entrepreneurial culture

 Presence of family business

Abraaj’s model

 The approach used by Abraaj’s team since 2005 which emphasis on

 Growth oriented sectors in Middle East region

 Choosing companies which are market leaders, entrepreneurial spirit and competitive

advantage

 Creation of value plans for portfolio companies and partnership with management teams

 Faster execution, Diligent work, monitor work to deliver large risk adjusted returns

 Leverage Abraaj’s regional network in Middle East region

 Securing deals by regional networks and connection with local trading families

 Bottom-up approach to identify key trends and opportunities

 ‘Triangular structure’ to screen and invest in companies.

b) How did Arif Naqvi get his new firm established in a novel market?

Arif identified the changes that were taking place in the Gulf region, and focused on capturing this

growth potential. He was of the view that the region had immense opportunities for

project financing.

Over a period of time, Naqvi invested in various international franchises, such as Cupola which

was valued at $150 bn. He however, took out the investment domain and named it as Abraaj

Capital. Abraaj raised $65 million for its buyout and growth capital fund, with the help of which

Arif was able to meet the infrastructure needs.

He ensured that there was good amount of incentives for the investment team, to motivate them.
 c) How has Abraaj been so successful to date? Has it been skill or luck?

Abraaj has been very successful so far because of being at the right place at the right time. Indeed,

Arif Naqvi started the firm in 1994 and had almost no competitors back at the time in the MENASA

region. He was the only one in the market to invest in firms that no one would bet on. Several

companies Abraaj invested in were located in Egypt and Saudi Arabia, places were few were brave

enough to venture.

Abraaj was investing in good opportunities that other companies could not see. So, it has been skill

most of the time. They choose carefully the companies in which they wanted to invest. Abraaj has

then been recognized has the leading PE firm in the region.

Another important point is that Abraaj succeeded in having very good relationships with investors

in the Gulf Region. It allows him to raise the needed funds and to have more credibility on the

market. Once again, the good decisions were responsible for its success.

d) What strategic choices should Arif Naqvi make?

Arif Naqvi is at a milestone and has to make the right decisions to keep Abraaj on track.

According to us, Abraaj Capital should keep going alone as the firm is still relatively small

compared to other PE firms in the US or in Europe.

Abraaj has to strengthen its internal processes and control its framework before going public or

considering any alliances. It has to create value for its shareholders and stakeholders. The

investors of Abraaj have to know where their money is going and what they return are.

Abraaj already implemented internally a Corporate Governance and Sustainability Process but it

might not be enough given the amounts of money involved. This task is essential as we know

that Abraaj Capital recently had issues with its investors. In 2018, auditors discovered that

Abraaj had borrowed money from its own fund without investors’ consent. This has led to a

major restructuration of the firm.

One has to bear in mind that Abraaj Capital has been created by Arif Naqvi himself and his

brother-in-law Waqar Siddique. The latter is the company’s head of risk and compliance. This

could lead to some risks for the firm as they would rule it as a family office and not as a PE firm.

Moreover, Abraaj Capital has a lot of investments to make in the MENASA Region as there are

a lot of other opportunities which will allow its growth. These investments in a large region will

require more people and resources and will allow the firm to develop more by itself. As Abraaj

did for National Air Services, they have tremendous opportunities in the region with undervalued

companies.