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Mustafa Abdel-Wadood

UAE, DUBAI - Economy

The Sweet Spot

CEO, Abraaj Capital Limited

Bio

Mustafa Abdel-Wadood is a member of the Board of Directors and Vice-Chairman of the Executive Committee of Abraaj Capital. He has over 20 years of experience in the field of investment management, corporate finance, and business development throughout the Middle East region and beyond. Prior to joining Abraaj Capital, he was at the regional investment bank EFG-Hermes, with his last position there as CEO in the UAE, overseeing the bank’s expansion in the lower Gulf.

"Our investors are entities that choose Abraaj on the back of our track record."

Abraaj Capital is the only private equity group in the global top 50 with operations based outside of Europe or the US. What has been the driving force behind the success of your operations?

We owe our success largely to our focus and persistence throughout our 10-year history. Abraaj Capital has a strong commitment to the region, and beyond that, to high growth markets in general. Very early on, we recognized the entire region as a source of opportunity. When the firm was established, we identified the Middle East as a region with an interesting demographic and growth profile, and saw that the corresponding opportunity for investment would be tremendous. By focusing on that vision and building teams ahead of time, we have been able to grow the business steadily.

What factors led to Dubai being the hub for Abraaj Capital’s regional operations?

Dubai is a very effective place to service the broader MENASA (Middle East, North Africa, and South Asia) region. Ultimately, however, we are a private equity firm that invests over a very wide geography. Theoretically, we could be based anywhere, but there are a number of factors at play. One is logistics and connectivity. Looking at the central location of Dubai, the city is perfectly placed both for business and for living. Historically, the city has served as a hub, and although the Emirate is often still associated with real estate, it has always been a trade and business hub. We are based in the DIFC, and all of the service providers here view Dubai as a gateway to the UAE and beyond. Dubai has the ability to draw in talent, and so we are able to attract a high-end talent pool.

“Our investors are entities that choose Abraaj on the back of our track record.”

You recently announced plans to invest in 15 small businesses around the Middle East. What is the strategy behind this move?

You are correct in that Abraaj recently announced its 14th investment through its small- and mid-cap (SMC) investment platform. We are looking of course at commercial returns. Our investors are entities that choose Abraaj on the back of our track record and, ultimately, our growth is dependent on the ability to deliver superior performance to our investors. The SMC segment specifically provides very interesting opportunities, and our focus on this segment is a reflection of the belief that as companies grow in size there are new ways to enhance and focus investments and private equity opportunities. We decided to set up a dedicated vehicle, in the form of Riyada Enterprise Development, which identifies and invests in SMCs across the MENA area. We have found this strategy to have worked very well for us, and since the launch of the RED platform we have invested in 14 high-growth companies across nine industries and eight countries in the MENA region.

How do you target SMCs?

It is done largely through a proprietary deal flow. We are very local in the markets we operate in, and although Dubai is our hub and base, we have a presence in most of the geographies in which we’ve invested. By having a physical presence, we are close to the deal flow; we know the landscape and understand the businesses at work. After 10 years in the business, we have delivered a large number of success stories, and so businesses that are seeking growth now approach us directly. They view Abraaj Capital as a partner of choice. We also pro-actively look for new prospects, and occasionally find opportunities through intermediaries, such as banks and investment banks.

The healthcare sector has played a strategic role in Abraaj Capital’s investments. What makes this sector so attractive?

Health care is a sector with massive growth potential, and one we find to be extremely interesting. We have exposure to multiple aspects of the sector, from pharmaceutical retail, to hospitals, medical labs, and everything in between. If you look at the demographics of growth markets, they are very underserved and underinvested in terms of health care across the board, and specifically in the MENA region. They are underserved right through from hospital beds to diagnostic labs and infrastructure. Locally, health care has become one of the key priorities of the government. There is significant investment potential, especially for public-private partnerships (PPPs). It’s a space that provides opportunities at different levels, and is largely counter-cyclical.

Why was now chosen as the right time to divest your interest in Turkish hospital group Acıbadem?

We invested in Acıbadem in 2008 at the peak of the boom, and during the four-five years that we held it, which were probably some of the most challenging in recent history, the business more than tripled in size in terms of profitability along a number of other metrics, including creating more than 5,000 jobs. The number of hospitals within the group also increased from six to 13, which proves that even in times of financial uncertainty and challenging environments, the sector continues to grow. There is a natural holding period for us, however. We go into an investment with a clear view on delivering support and value to the existing shareholder, entrepreneurs, and principals, in order to take the business to the next level. We ultimately aim to deliver returns to our investors, and so at some point we have to exit and seek opportunities elsewhere. However, we believe that the opportunities for the group remain strong, and that is why we continue to invest and have remained a shareholder in the holding company, IHH Healthcare Berhad.

What other sectors do you believe hold interesting growth potential in the region?

The reality is that the region is largely underinvested across the board. The core factor at play is the demographic make-up of the region—there is a very young population, and as the growing middle class emerge they will continue to spend and have needs, from white goods, to retail, to financial services, to health care. Sectors that are consumer driven are very interesting, and if you look at the MENA region, opportunities around natural resources will also continue to be key. Both soft and hard infrastructure continues to be underinvested also.

To what extent did Dubai’s debt troubles reveal certain flaws in the way in which the economy was evolving?

Taking the situation into context, the global financial crisis took everyone by surprise, and while it began in the West, it really affected the whole world. Dubai, as a fast-moving, aggressive economy that was largely well integrated, received a disproportionate impact as compared to more insular countries. It was the very fact that Dubai had grown so successfully and was so well integrated that resulted in the crisis delivering such a significant speed bump to the economy. The impact was largely representative of Dubai’s drive to push forward, even at the expense of being slightly less protected. Locally and globally lessons have been learned, and we have started to see a steady recovery since 2010. Looking at Dubai’s role as a hub, as well as in airport passenger traffic, port traffic, tourism, retail, and hospitality sector growth, it is clear that the Emirate is starting to demonstrate a steady recovery.

© The Business Year – May 2012

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