Private equity firms historically favoured Western expansion, yet this firm has compelling reasons to traverse the opposite direction, moving towards the East.
“When I began my career in 1991, the advice was to head west. Now, I advocate for heading east, as the growth in Asia outpaces Europe,” explained Karim El Solh, CEO of Gulf Capital. “Europe faces a slow-growth, ageing population and is entering a recession. In contrast, Asia boasts vibrant youth, high growth rates, liquidity, and extensive opportunities.”
Gulf Capital, managing $2.4 billion in assets, has closed 38 investments, concentrating on sectors like Technology, Fintech, Healthcare, HealthTech, Business Services, Consumer, and Sustainability. These sectors are projected to achieve a value of $675 billion in the Asia-Pacific technology market by 2025.
It has recently opened its office in Singapore to capture the rising growth along the West-East Asia corridor.
On March 20, Gulf Capital disclosed that its Singaporean operation, Gulf Capital Asia Pte Ltd, secured a Capital Markets Services License (CMS) from the Monetary Authority of Singapore (MAS). This license empowers the firm to conduct regulated fund management, market funds, advise on mergers and acquisitions (M&A), and other corporate finance transactions. This achievement reaffirms Gulf Capital’s commitment to global regulatory compliance and operating with transparency across all jurisdictions.
Now under regulatory oversight in key global financial hubs, including ADGM, DIFC, and Singapore (MAS), the newly awarded CMS license from MAS is crucial for Gulf Capital to support its portfolio companies’ rapid Asian expansion and advise on potential acquisitions and funding needs.
“We’re actively pursuing acquisitions, particularly in Asia, with our portfolio companies,” said El Solh. “For every Gulf-based company acquisition, we make ventures into Asia. With 15 acquisitions already in Asia and several more in the pipeline, we’re also focused on exits, having completed five in the last year.”
Leveraging Singapore as a gateway, the firm is strategically positioned to benefit from significant growth across the West-East Asia corridor. Their investments align with resilient, rapidly growing sectors like technology, fintech, healthcare, business services, consumer, and sustainability.
Growth in Asian markets
Gulf Capital foresees the East-West Asia investment corridor as the driver of global economic growth over the next three decades. Projections indicate a 220% growth in the GDP of the GCC countries, 270% for ASEAN nations, and 410% for India by 2050. Comparatively, European economies are anticipated to grow by 50% and the US by 80% during the same period. The new Silk Route spanning the East-West corridor emerged as one of the world’s fastest-growing economic blocs.
“I think going deeper into Asia is very important for us, and we are also looking at potentially setting up something in Hong Kong,” El Solh enunciated. “And the idea is to take our companies from here to Asia and to bring companies from Asia to here, so we’re investing across this interesting corridor.”
With Asia’s GDP anticipated to grow by $22 trillion by 2050, accounting for 60% of the global GDP, the GCC and ASEAN countries are set to contribute significantly to Asia’s growth. Favourable regulations, flourishing industrial activity, successful diversification drives, burgeoning service sectors, and a youthful entrepreneurial populace contribute to the GCC and ASEAN’s significant contributions. Asia’s burgeoning middle class is also poised to play a pivotal role in this trajectory.
By 2030, the continent’s middle class is expected to reach three billion people, constituting 60% of the global population. Their projected consumption share by 2040 is expected to reach 40% of global consumption, thus presenting substantial opportunities for mid-market businesses amid rising per capita consumption in Asia.
Fourth fund in 2024
As Gulf Capital nears the completion of its third fund and gears up to launch its fourth in 2024, its CEO confirmed in an exclusive interview with Finance Middle East that its fourth fund aims to match the size of its upcoming third fund valued at $750 million.
“Our focus for the fourth fund will be the corridor from the near to the Far East, maintaining a 70% Gulf and 30% Asia ratio,” mentioned El Solh. “Our unique approach leans heavily towards control buyouts, accounting for 80% of our deals. We are deeply involved with our portfolio companies.”
The firm’s operational prowess, bolstered by 23 operating partners and advisors, involves comprehensive intervention post-acquisition to drive growth. “We meticulously refine, transform, and elevate our acquired companies,” noted El Solh. “Our hands-on approach typically results in tripling company profitability, setting a significant growth trajectory.”
New exit route
El Solh disclosed that Gulf Capital is in discussions with several global buyout funds to potentially acquire some of its companies, marking a new exit route. Reflecting on Gulf Capital’s 2023 performance, he highlighted the firm’s numerous exits and commendable distributions, underscoring their distinctiveness in a subdued US and European IPO market.
“The key differentiation is the pace of growth our companies are experiencing,” emphasised El Solh. “All our Fund Three portfolio companies are growing at an average rate of 17% annually, significantly outpacing the economy’s 7% growth. Record profitability was observed across most companies last year, indicating substantial growth.”
El Solh discussed the shifts in the investment environment, noting a transition from relying on low-cost financing to active involvement in company growth.
He explained that in the past, in both the US and Europe, leveraged buyouts relied heavily on cheap financing, typically ranging from 1% to 3%. This low-cost financing played a significant role in generating returns. However, the landscape has changed; the current acquisition finance cost is around 12% to 13%. This shift emphasises that acquiring finance at a lower cost is no longer the key to profitability.
Instead, the focus has turned towards building and growing companies through active involvement. “Our specialisation lies in working closely with our operating partners to grow the companies we engage with actively,” he said. This trend departs from the traditional leveraged buyout model, where private firms remain passive. There’s now a strong emphasis on operational enhancement and transforming companies to create substantial value.
