x Abu Dhabi, UAEMonday 24 July 2017

Buyout firms makeover Gulf assets before exit

Turnaround artists are seeing business pick up in the Gulf as buyout firms look to shape up and sell their assets.

Gulf buyout firms are hiring turnaround specialists to trim the fat from companies they have earmarked for sale.

Consilia Partners, a consultancy based in the UK, is helping to prepare several businesses in the region for sale since opening a Middle East office a few months ago, said David Axon, its chief executive. Many of those assignments came from private-equity companies that bought businesses in the boom and now wanted to sell.

"We can get it to a position where it's an attractive asset for sale," he said.

The rise in turnaround activity comes as private-equity companies reach the end of their first cycle of investments since they entered the Gulf about 10 years ago.

Private-equity firms typically buy stakes in private companies and sell for a profit within a few years - a process that was interrupted by the global financial crisis that began in 2008. With no buyers, firms were left to steer their acquisitions through a crisis for which many were unprepared.

Anecdotal evidence suggests that after muddling through the worst of the downturn, many firms are finally deciding to shape up their holdings and sell them.

"I've got five buy-side assignments and two sell-side assignments that we're working on right now," said Paul Harter, a partner with Gibson, Dunn& Crutcher in London and Dubai who works with regional private-equity firms.

Many firms had already finished improving companies in their portfolios, he said, and a rise in private-equity sales was almost inevitable in the coming year.

"For the first time in a long time, you have financial sponsors who have assets that are ready to sell," he said. "There have been very few private-equity exits, but I think you're going to see more in the next 12 months."

For professionals such as Mr Harter and Mr Axon, more exits mean more business after many months of stagnation. No private-equity deals targeting companies in the Middle East were announced in the third quarter of this year, according to research from Bureau van Dijk.

The current trend of turnarounds and preparation for exits was partly a symptom of the freewheeling way in which private-equity companies bought assets during the boom, Mr Axon said.

"Their capabilities historically have been around determining appropriate financial structures and buying businesses that, irrespective of what happens, will improve," he said.

"Generally those businesses have been acquired in the boom times, where the management teams have never really had to run the business because the business was growing organically."

"Then you hit some recessionary periods and the management teams have not ever been equipped to do that," he said.