Accelerating growth during the pandemic

09 January 2022
Gulf Capital's private equity portfolio has outperformed 2019 as Covid-19 reinforces trends identified before the pandemic

Gulf Capital’s co-founder and CEO Karim el-Solh is looking forward to a positive 2022 after a strong performance in 2021.

The fair value of the Abu Dhabi-based firm’s $750m GC Equity Partners Fund III – known as Fund III – rose by 67 per cent during the year, driven by the record profitability of its underlying portfolio companies.

Fund III portfolio companies reported, on average, revenue growth of 28 per cent over the past year and an 83 per cent increase in profitability when compared to the previous year.

For El-Solh, the performance resulted from an investment strategy that Gulf Capital introduced in 2015 focusing on sectors at the forefront of global megatrends such as digitalisation, sustainability and globalisation.

"All of the sectors are doing amazingly well," he says. "They are growing very fast. People tell us you have the ideal pandemic portfolio, but we have been doing it since 2015."

The fastest-growing investments were in the fintech sector, where profitability surged by 109 per cent. This was followed by healthcare with a 74 per cent increase in profits, technology with a 54 per cent rise, sustainability with a 31 per cent hike and business services with a 23 per cent improvement.

Beating 2019

The strong performance during 2021 is more than just a bounce back from 2020, when stringent lockdown measures heavily disrupted economies in an attempt to slow down the initial spread of Covid-19.

“We are beating 2019 levels, so it is not just a recovery from the pandemic. We are much higher than pre-pandemic levels as well,” says El-Solh.

“Every single company was reporting higher revenues and profitability on 2019. What we see here is not only that we invested in the right sectors, but growth is accelerating for most of our companies.”

While the pandemic has brought about widespread economic disruption, it has also accelerated trends that Gulf Capital identified back in 2015.

“Consumer behaviour has changed," says El-Solh. "People are comfortable reading online now rather than physically inspecting. So we're seeing a lot of changes in telemedicine. People are happy to talk to a doctor and do consultations via zoom versus in person. So you see a shift in consumer behaviour, and a lot of the sectors we have invested in are accelerating their growth.”

One example El-Solh uses to highlight this trend is Geidea, a Saudi-based payment solutions provider that develops software and applications.

"We were entering 2018 as we looked at the deal," he says. "Under Saudi Vision 2030, they wanted to reach 70 per cent of all payments on a digital credit card or non-cash basis by 2030. Guess what happened? We hit the target in August 2020 – 10 years ahead. We are seeing an acceleration in terms of online payments, ecommerce, telemedicine, healthcare, tech. That is very exciting, and these trends are here to stay.”

We are continuing to invest in sectors of the future. We're looking at more fintech deals, heathtech deals ... Investing and protecting the environment is very interesting for us, as is food security and food tech
Karim el-Solh, Gulf Capital 

Future investment

For 2022, Gulf Capital will invest using its same broad strategy together with some other emerging themes.

“We are continuing to invest in sectors of the future," says El-Solh. "We're looking at more fintech deals. More heathtech deals. In healthcare, we're looking into sectors such as mental health, fertility and specialty healthcare. Investing and protecting the environment is very interesting for us, as is food security and food tech. These are all emerging themes that we want to capitalise on early.”

Gulf Capital also intends to exit some investments in 2022 as portfolio companies reach their critical mass.

“We will be announcing some exits as we harvest our Fund III next year; it is time to bring these companies to market,” says El-Solh.

International buyers are interested in Gulf Capital’s portfolio companies as a means of entering or building their presence in the region.

“Because our companies are market leaders and operate across a number of countries, we are being approached by a lot of strategic buyers,” says El-Solh. “We are speaking right now to European and American buyers. They can either build their own business over 15 years on their own or they can come and buy one of our companies and enter the market overnight.”

The growth we are seeing in Asia is unbelievable. It is two to three times the growth you see in Europe and the US
Karim el-Solh, Gulf Capital 

IPO market

Another exit option is the equity markets. “The IPO market is also promising because we are seeing a nice revival. This is led by government privatisations first, but it's only a question of time before the private sector also offers companies to IPO,” says El-Solh.

Another area of focus for 2022 will be expanding in Asia. “We are opening an office in Singapore and we have a private equity team based on the ground there to target Asia,” says El-Solh. “Their job was to find work on bolt-on acquisitions or open doors to support the organic growth of our portfolio companies.”

Asia is an important part of Gulf Capital’s strategy for the future. “We want to play this East-West corridor,” says El-Solh. “The growth we are seeing in Asia is unbelievable. It is two to three times the growth you see in Europe and the US.”

Asian markets also give Gulf Capital additional options when it comes to exiting investments.

"Hopefully we can sell in Asia. The multiples are higher there so there's a bit of growth and the multiples arbitrage. Pricing in Asia is much higher than what you see here."

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