EM private equity pioneers Abraaj and Aureos to merge

In a deal that will provide coverage of most of the world’s emerging economies, Dubai-based Abraaj Capital has agreed to buy UK-headquartered Aureos Capital.

Both are private equity firms with well-established businesses: $6.2 billion Abraaj is focused on Asia, Africa, the Middle East and Turkey; while $1.3 billion Aureos invests in small and medium-sized enterprises (SMEs) in Asia, Africa and Latin America.

The combined entity will have $7.5 billion in assets under management, a presence in over 30 countries and 153 investments managed by a team of around 150 investment professionals. That will include an Asian presence of 10 offices, 40 investment professionals and 45 investee companies.

The deal will combine Aureos with Abraaj’s existing $650 million SME platform, Riyada Enterprise Development, creating the world’s largest SME-focused PE group. The expanded Aureos platform will retain its name, structure and team.

In all the markets in question, the SME sector is “very neglected and under-serviced”, with banks reluctant to lend to these firms, says Omar Lodhi, Singapore-based chief executive of Abraaj Capital Asia.

He adds that the merged group will have an improved ability to make the most of its investee companies’ businesses – such as finding a customer for an Indonesian coal company's production among its contacts in India.

Asked whether there will be any staff cuts as a result of the merger, Lodhi says: “The beauty of this deal is that it’s totally complementary: Aureos weren’t in Mena, and we are; we weren’t in [sub-Saharan] Africa and Latin America, and they are.”

With regard to India and Indonesia, Abraaj had been interviewing for senior staff to put on the ground in those markets, but stopped when it began looking to acquire Aureos in mid-2011. Aureos has also provided it with local teams in the Philippines, Thailand and Vietnam, among other countries.

The merger is also complementary in terms of deal sizes, with Aureos focusing on smaller tickets of $5 million to $15 million and Abraaj on larger deals.

So there is “no overlap” in any of the firms' markets, says Lodhi, but the merged entity will achieve cost savings through shared operations, technologies, investment best practice, post-acquisition processes, and via realising portfolio company synergies.

Abraaj had started in 2001 with a focus on the Middle East and North Africa and later followed an organic growth path into Africa and Asia. But when it started doing deals in India and Southeast Asia, says Lodhi, “we kept our eyes open for M&A opportunities that would help accelerate our build-out”. Aureos fitted the bill, with its experience in Africa, Latin America, India and Southeast Asia, he says.

The list of physical offices run by both firms is certainly exotic. Abraaj has a presence in Riyadh, Istanbul, Cairo, Singapore, Mumbai, London, Karachi, Beirut, Ramallah, Amman, Casablanca, Algiers and Tunis, while Aureos has 12 offices in Asia, nine in Africa and five in Latin America.

The acquisition is subject to approval from the relevant authorities and one group of fund investors, and is expected to be completed in the first quarter of 2012.

As for what Abraaj paid to acquire Aureos, Lodhi declined to discuss the price or terms of the transaction.