Complex Made Simple

Abraaj to close Saudi food chain acquisition deal

Kudu operates 200 restaurants across the kingdom

Abraaj Group hopes to jointly seal a deal with TPG Capital to buy a majority stake in Saudi fast-food chain Kudu, according to a senior Abraaj executive, as reported by Reuters.

“It’s about dotting the Is and crossing the Ts – it’s not far,” Ahmed Badreldin, partner and head of Mena at Abraaj Group, says in an interview.

The private equity investor operating in growth markets has been in exclusive talks for months to buy a controlling holding in the restaurant group Kudu, which operates 200 restaurants in the country selling grilled chicken sandwiches, burgers and breakfasts, currently owned by four shareholders, including chairman Abdulmohsen bin Abdulaziz al-Yahya. The company would be TPG’s first venture into the Middle East.

This deal highlights how interest from international private equity firms in doing deals in the region has been picking up. The pickup in Middle East deals comes as private equity activity in the West has slowed. The value of private equity investments in Europe totalled $17.4 billion through September 19, a 41 percent drop, when compared with the same period in 2013, according to data compiled by Bloomberg. In the US, private equity deals are down by 76 percent.

Abraaj is also hoping to close two purchases in North Africa potentially by the end of the year, including one for Egyptian snack maker Bisco Misr, Badreldin adds. It has made the approach to buy at least 51 percent in Bisco Misr in July through its Abraaj Investment Management affiliate.

“There is a good deal flow in North Africa. There are plenty of mid-market-sized deals – we started (in Egypt) a year ago and locked in at good valuations.” A mid-market deal in North Africa would consist of between $20 million and $40m, he says.

Badreldin explains the level of competition for deals in Egypt had increased from almost nothing a year ago, pushing up price tags for businesses in the country, which has been rocked by economic and political turmoil since the ousting of president Hosni Mubarak in 2011.

“For hospitals, we would probably have had to bid up higher this year by two or three times,” Badreldin says to highlight the increasing confidence in the Egyptian market.

Abraaj is also aiming to list a Tunisian firm in the next four to five weeks, as well as sell an Egyptian asset. He declined to identify the companies involved.

The private equity firm also has a second business it was hoping to take public in the early part of 2015, he says, without elaborating.

But, much will depend on global equity markets, which have experienced significant volatility this month due to uncertainty over global economic growth, a resurgent European debt crisis and the potential impact of the Ebola virus.

“If risk aversion comes back strongly, then you’re not going to have an initial public offering, it’s that simple. Then, your buyers will be strategic buyers or you wait until another market window opens,” Badreldin says.