This post is part of the My Zawya Story series.
In the second part of my Zawya story I build on the initial introduction and talk about how I got involved in the information and data business as well as how I identified Zawya as an asset.
In 1999 I invested in an IT services company and the founder invited me to the board of directors. Although this company was showing a positive P/L trajectory, the cash flow from operations was quickly deteriorating. As the board member with the only experience in financial statement analysis I investigated the issue. I traced the cash flow black hole to a pair of financial websites, Saudi Finance and Middle East Markets, that were being developed and maintained by the IT company on behalf of a client. Although the IT company was spending cash on the project, cash from the client had stopped.
A quick visit to the client clarified that he no longer wished to continue the project, but that he was willing to sign over the two assets to the IT company. For reasons not relevant to this story, the IT company accepted this deal as full and final settlement.
There was a problem though and it was that the main part of the assets was not the technology behind the websites but the databases of financial information that was powering the websites. If these databases were not regularly updated with financial data then the value of the assets would quickly deteriorate.
The board of the IT company debated what to do with these assets. In the end we made what I believe was the sensible decision. Although the business case seemed compelling the business was not part of the core business of the IT company and it made sense to avoid diluting the focus of the company as well as burning needed cash and to spin out the two websites.
By the year 2000 the two finance websites were transferred into a company that was to become the parent of the Saffar group. Later that year I decided to leave my job as Treasurer of Union National Bank and build the Saffar group, starting with a data and information platform. One of the first steps that I took was map out the competitive landscape for Saudi Finance and Middle East Markets. I identified 12 potential competitors which included Zawya.
Zawya looked like it was on the right track and as it was then based in London, I asked one of our London based directors to visit the company and try to understand more about it. In his first meeting with Ihsan Jawad, Zawya’s founding CEO, it became clear that merging Zawya with Saffar’s data assets and injecting capital could make a lot of sense.
In part 3 of the series, I detail the investment in Zawya, focussing on negotiations and terms.