Mergermarket - May 31, 2016 - Interview with Managing Partner and Founder of Growthgate Capital

Growthgate Capital-­backed International Food Services and Roots Group Arabia, both based in Saudi Arabia, are looking to acquire a catering services company and an industrial  manufacturing services company, respectively, managing partner and founder of Growthgate, Karim Souaid said. The Bahrain­-based investment firm is also considering exiting two investments, he said.

Both targets are based in the MENA region.

In 1Q16, Growthgate acquired a stake in a modern retail  food business in North Africa. Souaid declined to disclose further details of the transaction.

While M&A in the region has slowed down, the food and retail  sectors have come to the attention of corporates and PE firms, suggesting that in volatile times, non-­cyclical sectors are of greater interest to investors, Souaid said.

The MENA region saw M&A worth USD 30bn in 2015, an 11%  drop compared to 2014’ s USD 34bn, according to a report from Bureau Van Dijk.

Growthgate Capital  targets strategic minority stakes of between 10% and 49% in mid­-market companies worth USD 100m-­USD 250m across GCC and select MENA markets. The portfolio companies either grow organically or acquire complementary targets to expand their footprint, increase market value and foster profitability. Bolt­-on acquisitions are of whole companies.

Growthgate Capital's shareholder equity stood at USD 400m in 2016, Souaid said. By the end of 2015, the portfolio value was USD 1.7bn.

Growthgate is looking to exit two portfolio companies via a private placement and an IPO in 2016 or 1Q17. Souaid declined to disclose the bourse but confirmed that the listing would be outside the GCC and would raise at least USD 250m.

According to its website, Averda International and Roots Group Arabia are Growthgate's longest­-held portfolio companies.

Souaid suggested that lack of IPO activity as an exit route in the region is limiting PE firms and their listing options. The privatisation wave anticipated in Saudi  Arabia will create an impetus for regional  stock markets, he said, adding that the Kingdom will lead the economic revival  in regional  bourses.

In 4Q15, the Kingdom's civil  aviation authority announced that the country will  begin privatising its airports and related services in 1Q16 in a bid to support finances in light of lower oil  prices.

Deloitte is Growthgate’s auditor and EY is its transaction team for net asset value (NAV) assessments.

Growthgate Capital  was established in 2007 with equity subscribed by a group of shareholders from the Middle East.

by Zainab Mansoor