Aramex deal to whet Rasmala's appetite

The Rasmala Buyout Fund, which earlier this week announced it will acquire air express company Aramex International Ltd for $61 million, sees the corporatisation of family-owned businesses and the deconglomeritisation and consolidation of small players in the Middle East, as offering attractive investment opportunities to a private equity firm.

Launched by Rasmala Partners Ltd - with the partnership including Arif Naqvi, who is also chairman of the Cupola Group - the fund will target such sectors as logistics, foodstuff manufacturing, consumer distribution, power, media and financial services.

The fund will seek to acquire management control in mature businesses in the GCC and the Levant, and enhance their value, before securing an exit route through flotation of a trade sale.

The entire strategy will revolve on making optimal use of leverage in structuring its acquisitions.

With an expected capitalisation of $150 million - a second public fund-raising round is being held early in 2002, with initial closing on February 28, or when $75 million is committed - the fund is being described as not only the largest private equity fund in the Middle East, but also the first leveraged buyout fund in the region.

Interestingly, Arif Naqvi had declared just after he, as Cupola's CEO had announced the surprise takeover of Inchcape's Middle East operations for $120 million, only to find himself in the midst of a battle with more entrenched regional players seeking to retain chunks of the business for themselves: "We are not asset-strippers."

But more to the point, as he himself claimed this week, Cupola has had an exceedingly successful run, having generated an IRR of over 35 per cent over the last nine years, and of an astounding 53 per cent in the last five.

The group has also transacted over $250 million in private equity deals since inception, including the acquisition and, subsequently, the disposal of the majority of Inchcape's regional businesses.

However, Naqvi and Cupola with its $40 million in Rasmala Partners Ltd form only one of the five strings to this bow.

The others are chairman Ali Shihabi, who started up Rasmala Investments; Imtiaz Hydari, earlier president of Cupola, and prior to that president and CEO of the Saudi Olayan Holding Co; Salman Mahdi, with experience in Union Bancaire Privee, Merrill Lynch and American Express; and Shirish Saraf, formerly CEO of Oriel Financial Consultancy.

In addition to the partners, the firm's shareholders are Deutsche Bank and Dr Abdul Aziz Al Fahad, a prominent lawyer from Saudi Arabia. Meanwhile, international counsel is UK law firm Norton Rose, and the fund auditor KPMG.

"We have worked closely with McKinsey & Co over the last eight months and continue to do so," added Mahdi, who suggested the firm has clearly identified the investment opportunity that exists in the Middle East.

"While the region is often criticised for shallow deal flow and limited exit opportunities, our belief is that times are changing, the Middle East markets are evolving and maturing, and WTO, privatisation, family succession and related issues all offer attractive investment opportunities to a professional, pioneering private equity firm."

He pointed out that historically, in the U.S. and Europe, private equity firms have played a critical role in enhancing corporate governance, efficiency and shareholder value.

"We see a tremendous opportunity that lies ahead in terms of developing and catalysing the Middle East markets, creating awareness and liquidity in the region's private equity space, and in creating wealth for investors in the fund."

Added Tim Marsden, the partner who heads Norton Rose's team in developing the fund's structure, in London: "The (Aramex) deal is bound to significantly raise the profile of this new fund - it is extremely unusual to have a Gulf-based bid for a Nasdaq-listed company."

The company has meanwhile announced the Aramex acquisition will be financed by $25 million from the Rasmala fund and other equity investors, $30 million as a six-month bridge loan facility from Shuaa Capital, and $10 million mezzanine debt from Capital Trust.

It has also announced its intention to acquire controlling interests in a number of other companies once the Aramex deal is complete, acquiring controlling stakes in GCC and Levant-based operating companies and then securing an exit route for investors through operational and financial restructuring that will lead to flotation or a trade sale. More will undoubtedly unfold in the months to come.