Long Term Strategy in a Short Term World

October 25, 2014 By in Strategy, Strategy Cornerstone Tags:

عربي

Price earnings ratios (P/E) of some of highest traded stocks in the country are crossing into the 20’s. You don’t need a lot of analysis to realise that there is no way that anyone, especially a professional asset manager, should be invested in such stocks. The dilemma for asset managers is that the reason these stocks have high P/Es is that their prices have appreciated spectacularly in the short term and avoiding them leads to lagging performance by the asset manager relative to the market and his peers, at least in the short term.

In 2005 there was a real estate (RE) boom in the UAE that was clearly unsustainable. If you were a commercial bank it was clear that continuing to lend into the RE sector was not a sound credit decision. The dilemma for the bankers is that avoiding lending to that sector would cause their profits to lag relative to their peers.

These challenges are not restricted to the UAE financial sector but are global in nature and afflict all business sectors. Indeed I believe that the global financial meltdown was driven just as much by conflicting signals as it was by greed.  Continue reading →

Corporate Turnaround: Identifying a Toxic Corporate Culture

October 24, 2014 By in Corporate Turnaround Tags: ,

Fast growing economies, such as those found in frontier and emerging markets, have a symbiotic relationship with fast growing companies. Good company performance drives economic growth which in turn drives business. The flip side of the coin is that economic downturns hit companies hard. Both of these scenarios are fertile ground for the development of a toxic corporate culture. Continue reading →

SMEs: The Ignored Middle Child of Banking?

October 23, 2014 By in SME Tags: , , ,

عربي

In developing various business plans for SME credit I often review why the commercial banks do not lend to this sector proportional to its contribution to GDP. I have written at length about some of my main ideas but I think there are several secondary issues that also play a role. One is the positioning of SME loans on the risk/reward curve relative to the two main alternatives: corporate loans and retail loans.

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My Zawya Story: Acquisition Negotiations

October 23, 2014 By in Negotiation, Private Equity Tags: ,

This post is part of the My Zawya Story series.

In my Origins post I set the stage for the start of discussions between Zawya, led by Ihsan Jawad as CEO, and Saffar, led by myself as CEO, for some form of cooperation. Supporting me in my negotiations were two of the directors of Saffar. Ihsan was supported by one of his co-founders, Husain Makiya.

Zawya needed funding, and Saffar had money to invest. But this was not a pure financial play for Saffar. Saffar had a long term strategy and a data & information company, which it was already building, formed the foundation of this strategy. As such Saffar decided that they must take majority control of the equity if they were to invest. The complicating factor in relation to Zawya was that due to the bursting of the internet dot-com bubble funding was tight and the founders of Zawya were faced with the proposition of having to issue far more equity then they originally planned with the prospect that they would have to relinquish control.

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Extracting Value from Consultants

October 23, 2014 By in Project Management Tags: , 1 Comment

عربي

A standard joke in business is that consultants work by asking existing employees for the solution and then packaging it nicely, rubber stamping it and presenting it as their solution to senior executives. The pervasiveness of this joke in business points to the the deeply held belief that this characterisation of consultants is true. Although the frustrations that businesses have in working with consultants is clear, the implication that consultants cannot add value beyond providing a stamp of external approval is false and quite unfair.

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My Zawya Story: Origins

October 22, 2014 By in Private Equity Tags:

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. Continue reading →

Closing the SME Credit Gap

October 21, 2014 By in SME Tags:

In last week’s article this column laid out the case that the current SME credit gap, estimated by the IFC to be at least USD 260 billion in the MENA region, could not be closed using currently available tools and institutions. There is an argument to be made that the potential exists to close the gap as the SME sector’s contribution to the UAE’s GDP is in excess of 50% and its share of total loans is only 4% thus implying that the massive supply-demand imbalance has driven loan pricing to extremely attractive levels relative to risk. It is important to note here that it does not matter what the risk is as long as the return more than compensates for it. Continue reading →

Operational Value Creation

October 21, 2014 By in Private Equity, 1feautred Tags: ,

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.
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Standard Chartered UAE: Mishandling the SME Issue or just Misunderstood?

October 21, 2014 By in SME Tags: ,

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

October 20, 2014 By in Private Equity Tags:

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.

Continue reading →