Frequently asked questions
Why are you setting up a private equity fund focused on SMEs, and why did you choose the DIFC as your jurisdiction?
We believe that the companies we will be selecting and are currently monitoring as potential acquisition targets will be at the right size for expansion pre-growth. At the stage we identify them, they have untapped potential and have enjoyed only organic growth. In some cases, they have stagnated and require a financial or operational push to break into the next zone of growth.
We chose the DIFC as a jurisdiction because of its stable legal and regulatory framework, a robust regulatory feedback, and a conducive tax environment that allows us to efficiently manage our investments and minimize costs for our investors. Local and international investors also trust DIFC as stable and trustworthy.
Why are you specifically targeting SMEs with at least 30% EBITDA average over the trailing five years? What makes these SMEs a good investment opportunity?
Although we use a variety of metrics to assess a business for acquisition or investment, these are the ‘gatekeepers’ for us to further analyse a company. SMEs that meet these criteria show a track record of consistent profitability and financial stability coupled with
1. low debt,
2. no key man issues or resolvable issues,
3. a robust growth marketing strategy
These SMEs are often overlooked by larger funds and can provide us with unique opportunities for value creation through strategic management and operational improvements.
How do you plan to find and vet these SMEs before investing in them, and what criteria will you use to assess their potential?
We find potential SME acquisition targets through a combination of research, networking, and referrals. We have referral partners in a variety of sectors such as auditors, bankers, investment managers, business brokers, wealth managers, and the extended social network. We will use rigorous criteria to assess their potential, including factors such as financial performance, management quality, market position, competitive landscape, and growth prospects. We will also conduct extensive due diligence on each potential investment to ensure that we have a comprehensive understanding of the risks and opportunities.
Why did you choose to invest in a scaffolding company owned by your father as your first investment opportunity? What steps will you take to ensure that there is no conflict of interest?
We chose to invest in a scaffolding company owned by my father as one of our first investment opportunities as it is a strong and stable business that has demonstrated unquestionably consistent profitability over 23 operating years with impeccable record-keeping.
Recognizing the potential conflict of interest in this situation, and we have taken steps to ensure that there is 100% transparency and fairness in the investment process with all declarations to investors and interested parties.
Specifically, we will have an independent valuation of the company's fair market value from a reputed and recognized valuation entity.
The investment will be limited to a maximum of 30% of the company’s total valuation to reduce overexposure of the fund.
What measures will you put in place to ensure that your investors are getting fair returns on their investments, and how will you ensure that you are meeting your targets of a minimum return of 12%?
All target SMEs that become part of the portfolio will be subjected to bi-weekly audits, monthly closings, and monthly/quarterly/annual board meetings. The first phase will be to maintain current operations. Each company will be held to same basic exacting standards that have historically worked for the company. The second phase will be implementation of growth strategy metrics and systems to ensure consistent future growth. Monitoring and reporting standards will be established which we will communicate regularly with to investors to ensure that they are fully informed about the progress of their investments. We will also maintain a strong focus on value creation and operational improvements in each of our investments to ensure that we are maximizing returns for our investors.
How do you plan to exit investments in SMEs, and what is your strategy for managing risk in the event of a downturn in the market?
Our strategy for exiting investments in SMEs will depend on the specific circumstances of each investment and the prevailing market conditions. We will maintain a flexible approach that allows us to exit investments in a timely and efficient manner while also minimizing risk. Upon the periodic audits, closings, and monitoring, we will be capable of assessing potential risks, downturns, and concerns arising ahead of time so as to implement remedial measures. Besides the variety of measures that can be implemented, consistent risk management methodologies will be maintained to address downturns in the market and the effects on the business. Investments will be exited no earlier than 10 years if they are effectively managed. A company that is on-boarded with a history of 5 or more years will establish its resilience through its historical financials wherein it will have survived or thrived during at least one recession and Covid-19. This will serve as a basis to assess the fundamentals of the business. The fund may exit post the 10-year period having achieved a targeted enterprise value and growth metric.
What is your track record of managing private equity funds, and how have your previous funds performed in comparison to the market?
We have a track record of posting significant returns in each of the SMEs that are current and future target acquisitions by the fund. Each target entity has a record of meeting a minimum of 30% EBITDA with a variety of other positive metrics in place consistently; even during significantly challenging economic conditions and recessions.
We have built a team of highly experienced professionals with a deep understanding of the private equity industry. A combined experience level of 40 years bolsters our ability to vet each investment with confidence.
How do you plan to attract investors to your fund, and what is your strategy for building relationships with potential investors?
We plan to attract investors to our fund through a combination of targeted marketing and networking, referrals from our existing investors, and a strong focus on transparency and communication.
Our investors will become our partners as we add more value over time. The return on their investment will be augmented by 20/80 profit split on returns above 12%.
Returning investors will also be getting preferred returns in excess of the 12% and the profit split above 12%.
What is your level of personal investment in the fund, and how much of your own money will be at stake in the investments you make?
As the primary GP for the fund, we will have a sizable personal investment in the fund, which will align our interests with those of our investors.
Our investment will vary anywhere from 10-30% of the value of the stake acquisition of the target SME.
How will you ensure that there is transparency and accountability in the management of the fund, and how will you communicate with your investors about the performance of their investments?
Transparency and accountability are critical to the success of any private equity fund,
To ensure transparency, we will provide/have - Detailed monthly and quarterly reports that will include information on the fund's investments, performance, and any changes in strategy.
- Regular updates on any changes in our investment criteria or any other significant developments that may affect the fund's performance.
- direct access to GPs in quarterly in-person meetings and other events
- Open door policy for investors
- welcoming questions from our investors at any time & Opportunity to meet the fund managers to clarify/discuss their investments and any concerns they may have.
As for accountability, we will have
- an independent auditor reviews our financial statements and operations annually.
- a reputable law firm and regulatory compliance team to ensure that we are following all applicable regulations and guidelines (DIFC regulated)
What are your contingency plans in the event that your investments do not perform as expected, and how will you mitigate losses to your investors?
Conduct thorough due diligence on all potential investments to assess their risks and opportunities, and invest in SMEs that have a strong track record of performance and growth.
We will diversify our portfolio of investments to minimize our exposure to any one company or sector. In the event that any investment does not perform as expected, we will take appropriate measures to mitigate losses, such as restructuring the investment, divesting the asset, or seeking additional financing.
We will also keep our investors informed about any developments and work with them to find the best solution for everyone.
Our strict monitoring standards and reporting structures will keep us abreast on a month-to-month basis, or shorter, of any economic and operational challenges faced by any one target SME.
What is your plan for managing the fund's cash flow, and how will you ensure that there is enough liquidity to meet the needs of the investors?
We will have a comprehensive cash flow management plan in place to ensure that we have enough liquidity to meet the needs of our investors.
This will include maintaining a cash reserve to cover any unforeseen expenses, monitoring cash inflows and outflows, and having a diversified portfolio of investments that provide a steady stream of income.
Additionally, we will communicate transparently with our investors about the fund's cash flow position and any relevant developments.
What are the key risks associated with investing in SMEs, and how do you plan to mitigate these risks?
Investing in SMEs carries inherent risks, such as limited liquidity, higher volatility, and greater dependence on key personnel. To mitigate these risks, we will conduct thorough due diligence on all potential investments and ensure that each investment meets our strict investment criteria. We will also diversify our portfolio to spread risk across a range of industries and geographies. Additionally, we will work closely with our portfolio companies to identify and manage any potential risks, and we will actively monitor and adjust our portfolio as necessary to minimize risk.
What fees will be charged to investors, and how will they be structured?
We will charge a management fee of 2% per annum on committed capital and a performance fee of 20% of profits above a hurdle rate of 12%. These fees are in line with industry standards and are structured to align our interests with those of our investors. We will also ensure that all fees are fully disclosed to our investors in a transparent and easy-to-understand manner.
What is your exit strategy for investments in SMEs, and how will you manage the process of exiting these investments?
Our exit strategy will vary depending on the specific circumstances of each investment, but we will typically look to exit our investments through a trade sale, an IPO, or a secondary sale to another investor. We will also actively manage our portfolio to ensure that we are well-positioned to exit our investments at the optimal time. Additionally, we will work closely with our portfolio companies to prepare them for exit and ensure that the process is managed smoothly and efficiently.
Provide a Contingency plan - scenario wise (best case, medium case, worst case)
Best case scenario: The fund's investments perform exceptionally well, and investors receive returns exceeding the promised 12%. The fund will continue to focus on investing in high-performing SMEs, and will seek to expand its portfolio and increase returns to investors with a target of 2-3 acquisitions per year for the first 5 years.
Medium case scenario: The fund's investments perform as expected, and investors receive the promised 12% return on their investment. The fund will continue to manage its investments and seek new opportunities to invest in high-performing SMEs. In such a case, no more than 1 acquisition will be made a year until the best case scenario is re-established.
Worst case scenario: The fund's investments do not perform as expected, and investors receive returns below the promised 12%. The fund will implement a plan to mitigate losses and protect investors' capital, which may include selling off under-performing assets, restructuring investments, and seeking new and diversified investment opportunities.
If the investor invests USD 500,000 in the fund, what returns can he or she expect?
If an investor invests $500,000.00 and the fund performs as expected, they will receive a return of $60,000 per year (paid semi-annually) as a 12% return. Depending on the overall performance of the SMEs within the fund, the return may be as high as 14%.
For investors above $1,500,000.00 invested in the fund, the return will be a flat 12% with a 1% bonus depending on overall performance.
Why do our backgrounds qualify us to undertake such a fund?
1. A family-owned group backed by two generations with a 45-year residency history in the UAE.
2. Conglomerate is diversified across scaffolding, construction, interior-fitout, and joinery manufacturing, real estate investments, and real estate developments.
3. Variety of businesses in the UAE with over a 20 year history as a market leader in more than one sector.
4. Operating across the UAE with five (5) facilities and over 460 empanelled contractors and clients.
5. Expanded into India in 2010/2011 with the setup of large-scale manufacturing units in North India for self-consumption and international exports.
6. Currently exporting manufactured goods to UK, USA, Belgium, France, and the GCC.
7. Completely debt-free and self-financed group with a stellar business reputation in the region.