Abraaj acquires emerging markets SME specialist Aureos

The acquisition of Aureos Capital, announced this week, amounts to a massive short cut. At a stroke, Abraaj has gained a fund manager with offices in 12 countries throughout Asia Pacific and around 50 staff. Globally, Aureos has $1.3 billion under management in Asia, Africa and Latin America, and specializes in investments in small- and medium-sized enterprises (SMEs).

"It's always a challenge when you are sitting in Singapore, trying to penetrate other countries in the region," Lodhi (pictured), CEO of Abraaj Capital Asia, tells AVCJ. "We could never have hoped to have the deep presence that Aureos brings us in Asia.

Abraaj hasn't disclosed the value of the transaction, which is expected to close by March once certain regulatory and investor approvals have been received. However, the combined entity will have approximately $7.5 billion in assets under management and 150 investment professionals across 30 countries.

Complementary assets

Abraaj has over $6 billion in assets in the Middle East, Turkey, Asia and Africa, of which $2.6 billion is in its fourth buyout vehicle. The private equity firm also has a $650 million SME platform, known as Riyada Enterprise Development. Once combined, Abraaj and Aureos' SME investment activities will be carried out under the Aureos brand. Existing fund mandates and investment guidelines will be unchanged, with Aureos retaining its inherent structure and team within the parent group.

It is touted as the largest SME platform in the global private equity industry, and might also claim to be the preeminent emerging markets business.

Announcing the deal, Arif Naqvi, Abraaj's founder and group chief executive, noted that the two firms' operations are completely complementary, with no discernable overlap. There will be some back office consolidation in Singapore, where both Abraaj and Aureos maintain their regional headquarters, but a reduction in overall staff numbers is unlikely.

Lodhi expects Aureos to benefit from Abraaj's portfolio management expertise and resources while the latter is able to leverage the former's local and sector knowledge as well as its strategic position as a leader in the emerging markets SME space. "There are also huge potential synergies for the underlying invested companies, because we can help them expand into new geographies," Lodhi adds. "The ability to look at the entire spectrum from SMEs to larger ticket is a compelling proposition."

Emerging markets story

For Aureos, the acquisition could be seen as a validation of its business model. Founded as a joint venture between CDC Group - the UK government's development finance arm - and Norfund, its initial mandate was to manage a CDC portfolio dating from the early 1990s as well as to set up new emerging markets vehicles. In 2007, Aureos management acquired 26.5% of the company and then took full ownership through two transactions in 2008.

CDC remains a core investor in Aureos' funds. Rod Evison, managing director of CDC, said Abraaj's acquisition would mean increased access to capital and local expertise for entrepreneurs in emerging markets. Brigit van Dijk-van de Reijt, partner and global head of investor relations at Aureos, expects development finance institutions - MFO of the Netherlands is another frequent LP - to remain involved as long as the firm's investment strategy remains the same

One way in which Aureos has modified its approach in recent years is to phase out single country funds in favor of pan-regional vehicles.

"All our second generation funds are consolidated regional funds," van Dijk-van de Reijt tells AVCJ. "For example, we have a pan-Africa fund that serves as a platform for SMEs, helping companies in East Africa expand their activities to other parts of the continent. It is the same in Latin America and Asia. We want to build regional powerhouses."

While dedicated India and China funds are likely to remain - Aureos India Fund II launched last July, targeting $200 million - the existing Malaysia and Brunei vehicles will not see successors. Rather, the private equity firm has thrown its weight behind its second Southeast Asia fund, which is over halfway to its $200 million target and is expected to reach a final close this year.

Indeed, Lodhi thinks it will be easier for the combined entity to raise capital. "LPs have become more interested in emerging markets exposure in the last few years. It was all about India and China but we think they will increasingly look at broader emerging markets exposure," he says. "They are also looking to reduce the number of GP relationships they have to manage. So from an LP standpoint, we offer a one-stop shop."

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• Topics
• GPs
• Buyouts
• Aureos Advisers (Aureos Capital)
• Asia
• buyout
• GPs
• The Abraaj Group