Many of the PE firms that I have dealt with have had difficulty in deploying an institutional approach to operational value creation post their investment in a company. Most PE firms simply revert to expending a large amount of resources in the pre-investment analysis and due diligence phase and then settle on one or two board seats to manage their assets post investment. The large imbalance resource expenditure pre and post investment leads is a warning flag. Although the board is the correct way for a PE firm to manage its assets post investment it cannot rely on the standard model of a board member acting independently. The same resources that analysed the investment need to support the board directors in governing the investment. This same analysis is also useful for companies in transition whether due to internal or external shocks.
Continue reading
Author Archives: Sabah al-Binali
Standard Chartered UAE: Mishandling the SME Issue or just Misunderstood?
The National is reporting on customer backlash to Standard Chartered’s decision to shut down their SME business in the UAE. The fact that the bank is, according to The National, “provoking fury among customers” brings into question Standard Chartered’s commitment to its clients. The article by The National reports on the bank’s excuses for its behaviour. It also reports that the bank’s clients do not accept these excuses. So what is going on? Continue reading
My Zawya Story: Introduction
This post is part of the My Zawya Story series.
Zawya, the MENA online business media company, was my fourth private equity direct investment and has been one of my most fulfilling and satisfying active investments, not just because of the 20x cash on cash return but also because of my participation in the leadership of building the company and charting a course to a phenomenally successful business.
Initiating Confrontation is Good Leadership
A good manager learns how to manage conflict when it arises, as it invariably does in any organisation. A good leader learns how to initiate confrontation. This seems counter-intuitive to many people but that is because there is an incorrect presumption that confrontation is bad. I blame tree-hugging hippies for falsely promising a corporate utopia free from confrontation. Continue reading
Leadership ≠ Dictatorship
In an executive position that I previously held I was building out my team and the company had a policy of recruiting internally first. This policy appeals to me in principle in that it gives employees the chance to widen their skill set and reduces recruitment costs. In theory I should also have access to superior information on the employee, but as it turns out human nature and unethical behaviour circumvents that from happening. Continue reading
The UAE: Gateway to Emerging and Frontier Markets
As the global economy continues to pick up steam after the aftermath of the financial crisis of 2008 businesses are looking for opportunities to grow. Ideas for growth have traditionally revolved around three main pillars of government infrastructure projects, tourism and domestic demand. Strong as these pillars are, and an important foundation for the economy, it is unnecessarily short sighted to restrict a business’s vision to these areas. Once the foundation is built, a regional and even global expansion should be considered.
My Zawya Story
For those who may not know, I am the founding CEO of Saffar Capital, the private equity firm that invested in Zawya in 2001 taking a 60% stake and then selling it to Thompson Reuters in 2012. I was also the Chairman of Zawya from 2001 to 2011. It was an incredible investment, one that I was actively involved in for a decade and that I also learnt a lot from.
Over the next few weeks I will be publishing a series of posts highlighting some of these lessons that allowed a tiny online media company backed by a young private equity firm to grow into a regional success rivaling and surpassing international competitors with deep pockets and global experience.
I have created a static page, My Zawya Story, to keep track of all the posts.
The current publication schedule is as follows:
- Introduction: 20 October
- Origins: 22 October
- Acquisition Negotiations: 23 October
- Two Initial Decisions: 26 October
- Deciding the Business Model: 27 October
- Negative Cash Flow Lessons: 29 October
- Positive Cash Flow Challenges: 30 October
- Strategic Growth Decisions: 2 November
- The Importance of Independent Board Members: 3 November
- Global Financial Crisis: 5 November
- Finale: 6 November
As each post is published I will update the schedule with the relevant links.
Sabah al-Binali
The Future of Investment Banking in the GCC
Investment banking in the UAE in particular and the GCC in general saw an unprecedented jump in activity in the period 2003-2008. After a couple of decades of basic boom-bust IPO activity the explosion of activity in the equity markets triggered a smaller, but no less dramatic, growth of investment banking activity that saw the deployment of new investment banking teams in new stand alone institutions, as well as branches of international banks and divisions in local commercial banks. The global financial crisis that was triggered in late 2008 ended the expansion era. After six years in the doldrums there are whispers about the rebirth of investment banking. The opportunities do indeed exist but not where conventional wisdom is pointing.
The future of investment banking (IB) lies in selecting the right mix of services and business model. Services can be broadly categorized into four areas: equity capital markets (ECM), debt capital markets (DCM), mergers and acquisitions (M&A) and sales and trading (S&T). ECM basically consists of raising equity funding: IPOs and rights issues. Supporting services include a strong distribution network, the ability to underwrite offerings, which requires a large balance sheet, and S&T services to support post offering trading, in other words make sure that people can trade the new shares. DCM is similar to ECM except that it targets funds raised by debt. The supporting services are the same. A successful M&A practice, companies buying and selling other companies, really requires deep relationships with local and regional clients with a full understanding of their business. S&T requires infrastructure and a large balance sheet to allow clients to trade on margin. These descriptions are already beginning to point to a certain conclusion. Continue reading
The SME Credit Gap in the Middle East
According to the IFC SMEs in the UAE represent 90% of total businesses. As a total percentage of GDP the estimates for rich MENA countries is estimated at approximately 51% contribution from SMEs with employment contribution at 62%. Paradoxically there is a SME credit gap in excess of USD 260 billion in MENA with only 4% of outstanding loans in the UAE awarded to SMEs. This points directly to the main challenge facing SME sector growth.
Corporate Governance Part 2: Operational Governance
The second part of the Corporate Governance series focusses on effective governance of management. There are broadly three areas: information disclosure, strategic direction and operational governance. For the board to discharge its duties in these areas it needs to take a proactive and consistent approach.
The foundation of any decision making process is information. Although it is the responsibility of management to assemble information it is imperative that the board leads the way in deciding what information is collected and how it is presented. The reasons for this are not only to avoid dishonesty but also to minimise the natural selection bias present in nearly any human endeavour. Examples of such information might include presentation of quality of revenue. Diversified, sustainable revenue generated from ordinary operations is considered high quality whereas a one time profit from the sale of a non-operating asset would be considered poor quality.