With the macroeconomic blues still singing in the headlines, the prospect of earning big returns through conventional market investments — such as buying stocks, bonds or trading foreign currency — seems increasingly uncertain. Investors are looking for alternative assets, for real deals, for something they can touch, such as acquiring property or investing in a start up.
Lebanon has its share of alternative investment opportunities to offer those looking to place their capital. But these opportunities will not to be found at local banks, which have largely run dry on deals; it is the small number of private equity firms in the country that hold the keys to the lion’s share of these investments. Small and medium-sized enterprises represent the vast majority of Lebanese companies, but increasing limitations on their access to leverage means raising equity through selling stakes in their companies often becomes the only solution if they wish to grow.
This urgency to access capital, combined with the increasing awareness of the financial benefits of raising equity — no regular interest payments — is intensifying SMEs willingness to chase this route. Private equity funds have taken note. New funds dedicated to Lebanon — such as Riyada Enterprise Development’s Lebanon Growth Capital Fund and Middle East Venture Partners’ Building Block Equity Fund (BBEF) — are jumping on the bandwagon. Other funds dedicated to the Middle East and North Africa are also looking to invest in Lebanon — such as Wamda’s and Capital Trust’s Euromena funds, which have already made two of their last three investments in Lebanon. SMEs need capital to expand, but this expansion is often outside of their home market as the prospect for further internal growth remains small. Lebanon is the lab in which concepts are tested, with successes here then taken abroad.
In the following pages, Money Makers details close to $200 million worth of investment opportunities in Lebanon, with this new regular feature of Executive catering to those enterprising individuals looking for alternative avenues to expand their financial portfolios and change the country’s financial landscape.
1- Building Block Equity Fund
What’s the deal? Participate in a fund that will invest in Lebanese enterprises.> Who is running the fund? Middle East Venture Partners (MEVP) headed by Walid Hanna.
What type of companies will the fund invest in? The fund is opportunistically looking to invest in Lebanese start up companies in any sector with a preference for those that have a tech component. “The magic word is scalability,” says Hanna, noting that MEVP is looking for small companies with rapid growth potential.
What is the size of the fund? BBEF currently has $8 million in assets (none invested yet) and will start raising another $7 million this month. Hanna expects to have completed the financing within three months.
What is the minimum ticket (investment)?$200,000; there is also a maximum ticket of $2 million.
What is the term of the fund? Six years with a one-year extension option
How much will the fund invest in each company?The fund will take minority stakes by investing between $200,000 and $1.5 million per company.
What is the target rate of return? The target internal rate of return of the fund is 30 percent.
How will MEVP exit the companies? By selling their stake to a strategic investor in the same line of business, to a private equity fund, or to an investor looking for a high growth company.
What if MEVP can’t exit an investment? “We can force majority shareholders to buy us out at a multiple of 2 within 5 years” says Hanna.
Give me more details: This is MEVP’s second fund. Its first fund, Middle East Venture Fund, raised $10 million by June 2010 and has so far invested $6 million in a total of eight companies.
How to invest in this fund? Contact MEVP at [email protected]
"Banks tell small and medium enterprises (SMEs) your debt-to-equity ratio does not make sense, we can’t lend to you, you need equity but no one is providing equity to SMEs. That’s why they need a fund like BBEF and then they can leverage the equity with bank debt”, says Walid Hanna, Chief Executive of MEVP. "
2- Lebanon Growth Capital Fund
What’s the deal? Participate in a fund that will invest in Lebanese enterprises.
Who is running the fund? Riyada Enterprise Development (RED) owned by Abraaj Capital, the Middle East’s largest private equity firm.
What type of companies will the fund invest in? The fund does not have a sector focus. “We will invest across multiple sectors, some are very low risk, low growth and some are high risk and high growth,” says Elie Habib, Lebanon country manager of RED. For a company to be considered, it has to have a minimum worth of $7 million.
What is the size of the fund? It already has $30 million of committed capital from Cisco, the European Investment Bank and Abraaj Capital. RED is now looking to secure $20 million from Lebanese investors. “The sooner, the better; there is no set date,” to meet the target, says Habib.
What is the minimum ticket? The minimum ticket is $500,000 and there is no maximum. If investors want to come in for less, a feeder fund can be put in place in which investors place their capital and then the total is invested in the fund.
What is the term of the fund? Eight years, which consists of an investing period lasting four years during which the funds should be invested in Lebanese companies, and a harvesting period of four years during which the investments should be exited. There is a one-year extension option for each period.
How much will the fund invest in each company? The fund aims to invest $3 million to $4 million per company by taking minority stakes (minimum 20 percent).
What is the target rate of return? The target IRR for the fund is 30 percent.
How will RED exit the investments? “Before we enter, we study the exits,” says Habib. Exits will be achieved through a merger with another company, through a buyout by another private equity firm or a strategic buyer such as an international company looking to expand into the Middle East, or through the founders buying out RED’s stake.
What if RED can’t exit an investment? “We put in a ‘forced realization’, that is if after five years there is no sale or we rejected all the offers then we can force an exit; either the founders buy us out or we find them a buyer. It is a joint decision with the founders,” says Habib.
Give me more details: Lebanon Growth Capital Fund has so far invested in just one company by injecting $3.25 million in Nymgo, a software application allowing users to make calls from computers to phones over the Internet. Founded by Omar Ounsi, Nymgo differs from Skype by having a 100 percent paying customer base for voice offerings.
How to invest in this fund? Contact Elie Habib at 01-983640
3- Beirut Terraces
What’s the deal? Shares in a high-end residential property project in Beirut Central District’s Minet El Hosn area.
What is the size of the offering? $100 million
What am I acquiring? Shares in a residential apartment with prices starting at $1.5 million; price is subject to a 20 or 30 percent discount.
What is the term of investment? Four years from closing date, which has been postponed from March 31, 2012, to an undetermined date.
What is the coupon rate (rate of return)? 7 percent of the investment’s value per year.
What are the exit strategies? Shareholders have a call option (the right to purchase a unit) at a 10 percent discount at the end of the third year. If this option is not exercised, then in the fourth year, the owners have a put option (the right to sell the unit) to the shareholder at a 20 or 30 percent discount. If the options are not exercised then the shareholder is paid back his initial investment with the 7 percent annual coupon.
Can I get access to leverage? BankMed is offering a loan facility for 70 percent of the investment.
Developers/Owners/Architects? Benchmark Development, also behind Wadi Hills Residences, are the developers of the project. It is owned by DIB Tower and Town Tower and designed by Swiss architects Herzog and de Meuron, those behind the Tate Modern museum in London.
Give me more details: Beirut Terraces, a vertical village overlooking the Beirut Waterfront, is comprised of 25 residential floors with 130 apartments. It also has one retail floor and 5 underground parking floors. Each apartment will have its own terrace and selling prices will start at $5,200 per square meter. The building is expected to be completed in 2015.
Interesting extra: There is a free iPhone application.
How to invest in this real estate project? Contact BankMed at 01-361380
"There are two key features of this product: the coupon payment which allows the investor to earn while he/she waits for the unit to be delivered, and locking in the price of the unit for a significant period of time, says Khaled Zeidan, general manager of MedSecurities, a BankMed subsidiary "
4- Wamda Fund
What’s the deal? Invest in an early stage MENA fund run by Lebanon-based Wamda.
What type of companies will the fund invest in? The Wamda fund is part of a wider entrepreneurial ecosystem looking to empower entrepreneurs in the MENA region. The fund hopes to invest in the early stages of two types of companies throughout the region. “The first type are technologically advanced companies that can succeed globally, and the second type we call ‘copy paste innovate’,” says Wamda’s CEO Habib Haddad. “Its not that we want to promote clones but we think there is so much value and white space that can be filled in the regional market so a good team with good execution can go after that.”
What is the size of the fund? So far the six-month-old fund has only one anchor investor (though the amount invested remains undisclosed) and it is looking to raise $15 million this year with an aim to eventually reach $25 million.
What is the term of the fund? The fund is looking to invest between $50,000 up to $1 million per company over the four years and expects to have exited the investments within six years.
What is the minimum ticket? $100,000
What is the target rate of return? The target IRR for the fund is 45 percent.
How will Wamda exit the investments? Haddad sees three types of exits for the fund: A buyout of investments by European and US companies looking to enter the regional market, a buyout by companies in emerging markets such as Turkey, China and South Africa, and finally a buyout by local companies. “Local markets present the biggest opportunity; it might be time for them to wake up and start acquiring,” says Haddad.
How to invest in this fund? Contact Wamda at [email protected]
What’s the deal? Invest in the development of an online social platform looking to open a lab
What is Mach-3D?
Headquartered in Luxembourg, Mach-3D offers a ‘mood-based’ platform that enhances the web and mobile experiences through personalized 3D profiles, interacting and sharing emotions. It uses a core technology called 3DoM (3D Operated Motion), that transforms pictures into realistic, emotional and customizable 3D avatars, called Living Portraits (LP). Through its cloud platform and the users' favorite social networks, LPs can interact with one another by sharing emotions, communicating and exchanging virtual gifts.
Who founded the company? There are three co-founders: Chief Executive Chandra de Keyser, Chief Technology Officer Massimiliano Tarquini, and Alessandro Ligi, the senior software architect.
What are the expected revenues of the start up? The founders expect revenues to reach $900,000 in 2013 and grow significantly to reach $9 million in 2014. It projects a positive cash flow by the first quarter of 2014 and it expects to break-even by the end of 2014.
What’s the link to Lebanon? They plan on opening a lab in Lebanon and they aim to hire 8 people. They have partnered with the Investment Development Authority of Lebanon (IDAL) for their expansion.
How much capital do they want to raise? They have €200,000 ($263,000) of seed money taken as equity from the two founding companies, Internationalize-IT based in the United States and 4IT based in Italy. They are looking to raise another €500,000 ($657,000) to hire more talent. “We are keen to have a ‘hands on’ investor who can coach us, help us develop strategic relations with clients, partners and give us visibility,” says de Keyser.
How to invest? Contact Capital Trust on 01-368968
How to invest in this start up? Contact IDAL at [email protected] or 01 983 306 Extention 233
6- Euromena II
What’s the deal? Capital Trust has already raised the total amount for its second fund dedicated to the MENA region, Euromena II. It is now deploying the funds into companies in the region. For two of the upcoming deals, it is looking to invest $20 million: $13 million (the maximum limit allowed by the fund) will come out of the Euromena II fund and Capital Trust is looking to raise an additional $7 million for each deal from private investors.
What are the two companies it is looking to invest in? One of the investments will be in an oil business in the Levant area and the other one is in a recycling business in North Africa. Capital Trust cannot disclose more information on the potential investments at this point. The two investments will be made out of Lebanese holdings.
What is the minimum ticket? Investors have to come in for a minimum of $1 million.
What is the target return on these deals? Capital Trust targets an internal rate of return (IRR) of 20 to 25 percent over four to five years. “If we can’t make at least twice our money then we don’t invest” says Romain Mathieu, the managing director of the Euromena funds.
When will the fund exit these investments? After four to six years.
How will they exit? All the options are on the table from a strategic sale to a secondary buyout to listing on the stock exchange. “What is important to know is that we never invest before having a very clear idea of the exit route of the deal. Investors know the most likely exit route,” says Mathieu.
What is in it for investors? As they would be investing in a company and not in a fund, investors would be taking a specific risk. They would invest because they like the sector, the region or the management, or “most of the time because they want to try us before investing with us in upcoming funds” says Mathieu.
Tell me a bit more about Euromena funds? Euromena I raised $64 million and has invested in nine companies, of which three have already been exited returning more than 50 percent of the commitment. Three of the investments were made in Lebanon: chemicals company Sodamco, Intercontinental Bank Lebanon and Chedid Re, a reinsurance company. The second MENA dedicated fund, Euromena II has raised $100 million and has so far invested in three companies, of which two are from Lebanon: First National Bank and Khoury Home, a retailer of household products.
How to invest this fund? Contact Capital Trust at 01-368968
7- Grade ‘A’ office space in Beirut
What’s the deal? Invest in prime property in Beirut’s Central District on which a multi-use modern office tower will be built. The project will consist of two towers of 25 to 30 floors. Each floor will be made of 700 square meters of office space.
What is the size of the offering? Capstone is looking to raise $18 million. “We will start raising capital in a few weeks,” says Ziad Maalouf, Chief Executive of Capstone. He expects the raising of capital to be completed in a couple of months. They will be taking on leverage for the project. For every dollar of equity raised, they will take a dollar of debt.
What are the expected returns? 30 percent annual returns.
What am I acquiring?Investors will acquire shares in a company, which will own the land and the entire project.
What is the minimum ticket? Investors wanting to pour funds in this deal need to come in with a minimum of $500,000. There is no maximum.
What is the term of the investment? The project will be completed within four years, after which investors’ capital and profits should be returned.
Who are the developers/architects? Capstone is the developer and they intend to retain an international architect for the project.
How to invest? Contact Capstone at 01-993311