CAIRO: Private equity in Egypt has taken on the task of investing in growing local companies through acquisitions, consolidations, greenfield sites and turnarounds, in hopes of making them regional leaders.
ASCOM Mining and ASEC Holding in Cement were two case studies discussed by the panel entitled “Private Equity: Creating industrial leaders through acquisitions and turnarounds, hosted by Citadel Capital.
“The case studies show that these companies are changing and growing in size and scope, becoming leaders in their respective industries, said Hisham El-Khazindar, cofounder of Citadel Capital.
ASEC was established in 1975 as the Arab Swiss Engineering Company, focusing on geological investigations. In 2004, ASEC Group was purchased by Citadel Capital and continued in the field but with a new strategy. The company has since expanded its operations beyond Egypt to the entire Middle East North Africa region, and has recorded unprecedented profits, said Hisham Gabr, CEO of ASEC Holding for Investments.
Both companies were acquired by Citadel Capital, resulting in a doubling of revenues and profits. “The consolidated profits of ASEC Group in 2004 was a loss of LE 150 million. However, this year the company recorded LE 100 million in profits, El-Khazindar said.
“The credit goes to the people who took over, not us, he said. In 2010, ASEC Group will be making LE 1.4 billion to LE 1.5 billion.
Citadel Capital is not just an asset manager, they invest their own funds as partners.
Private equity takes different forms, but since Egypt is an emerging market, Citadel Capital has been lucky in generating good returns for the company and its investors.
In their acquisitions, Citadel Capital apply a unique approach, with a philosophy to employ more people and generate benefits for other stakeholders, employees and society as a whole. “ASEC and ASCOM went from where they were to different places, El-Khazindar said.
The government has encouraged private equity firms by taking legislative steps to regulate mergers and acquisitions. “A new law was announced this year for stock exchange transactions [of companies acquired and listed on the stock exchange], giving a set of rules for buyers to abide by, he announced.
Improvement needs to be made and additional focus given to acquisition finance. Acquirers need to use not only their equity, but also their debt to finance companies, the use of debt will allow for greater returns.
Speaking about the Egyptian business culture, El-Khazindar explained that family businesses need to evolve and be open up to new finance opportunities if they are to progress. The new generation should be willing to relinquish financial control so that medium-sized family businesses can move to the next level.
“Being a private equity firm in an emerging market allows us to emphasize growth, not cost reduction, therefore, in all the firms we’ve acquired we always increased the number of employees, he said.
