CASE: F-312

DATE: 03/15/2015

THE ABRAAJ GROUP:

MAKING OF A GLOBAL PRIVATE EQUITY FIRM

Data is just the obvious way we measure performance, whether of a would-be partner company,
or our own. Performance itself is driven by a myriad of human actions that draw upon both
localized cultural traits, such as empathy with the local markets, and universal traits, such as hard
work, business acumen, and entrepreneurial zeal. As a result, my most pressing job as CEO—and
the constant challenge I face looking forward—is to ensure that the firm manages to excel on two
axes, locally and globally.
—Arif Naqvi, Founder and Group Chief Executive, The Abraaj Group

It was mid-January 2015 and executives at The Abraaj Group were strategizing about the global
private equity firm’s upcoming meetings at the World Economic Forum, an annual gathering of
the world’s leading thinkers, business leaders, and policymakers. Arif Naqvi, founder and group
chief executive of The Abraaj Group, would have a packed schedule in Davos, where he would
participate in panel discussions as well as meet with government leaders, business partners and
competitors, and potential investors.

Abraaj executives knew many of the topics and questions likely to be raised: How had Abraaj
emerged as a leading global private equity firm? What was the driving force behind the firm’s
success? How did Abraaj create value and what was its edge in comparison to local and global
competitors? Why did it choose to expand globally and how did it balance the need to focus on
local networks and knowledge with its current global stretch? How had these local-global
dynamics been manifested through the different phases of Abraaj’s business?

These were worthwhile questions, as Abraaj’s evolution over the past 13 years could be
considered phenomenal. Established in 2002 on the track record of Naqvi’s personal investment

Ali Gara (MBA 2015) prepared this case with the guidance of Professor William F. Meehan as the basis for class
discussion rather than to illustrate either effective or ineffective handling of an administrative situation. All
information in this case is based on interviews in December 2014 and January 2015 with Tom Speechley, Sev
Vettivetpillai, Selçuk Yorgancıoğlu, and Can Dedeoğlu.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 2

success, Abraaj had evolved from a small fund focusing on the Middle East, North Africa, and
South Asia (MENASA) region into a leading private equity (PE) firm investing in growth
markets extending from Latin America to Southeast Asia. Explaining the firm’s success
retrospectively was relatively easy, though the bigger challenge, perhaps, was plotting the right
course for the future.

Abraaj worked to build teams with deep local expertise in every country where it invested—and
to support them with a global platform that provided best-in-class resources in every phase of
deal making. Abraaj’s successful track record based on this strategy meant the firm was well
positioned to take advantage of the expected global economic shift from developed to emerging
markets in coming decades. Opportunities to tap into the increased capital flowing to emerging
markets seemed unlimited—yet therein lay the challenge.

Naqvi and his team knew that to build the firm going forward, Abraaj had to focus on the right
opportunities and choices: Where should the firm focus its growth efforts? How could Abraaj
ensure that even as it continued to grow as a global PE firm, it maintained a consistent culture
and steady performance across the many diverse regions it covered? And, finally, as Abraaj
consolidated itself as a global financial institution, how could it continue to balance its
entrepreneurial dynamism and locally nuanced strategies with the need for common processes
and underwriting standards across all its markets?

THE ABRAAJ GROUP: EVOLUTION OF THE FIRM

In 2015, Abraaj was one of the leading private equity investors in growth markets that spanned
Latin America, Africa, Asia, and the Middle East (see Exhibit 1). The group had over 300
employees, including more than 160 investment and operating professionals, in over 25 offices
organized around five regional hubs in Dubai, Istanbul, Mexico City, Nairobi, and Singapore.
Since its inception in 2002 as Abraaj Capital, the firm had grown to manage over $7.5 billion
across 20 sector and region-specific funds and returned over $4.6 billion to investors from over
70 full and partial exits.

Naqvi founded Abraaj Capital in Dubai in 2002, using his own track record as a successful
investor and the close personal relationships he had built with key players during his 16 years in
the region. An entrepreneurial Pakistani educated at the London School of Economics, Naqvi
understood the region’s local dynamics, believed deeply in its potential, and saw business
opportunities that might not be obvious to others. He moved to Saudi Arabia in 1986, and then
to Dubai in 1994, where he started his investment firm, Cupola. In 2002, he decided to separate
the investment arm out of Cupola to form Abraaj Capital, with the goal of raising the first Middle
East-based PE buyout fund. Naqvi’s strong relations with major investors in the region helped
Abraaj close a $116 million fund in June 2003. He then sold some equity in Abraaj’s
management company to regional investors, a move that helped boost Abraaj’s access and
credibility in the markets where it planned to invest.

Abraaj Capital’s strategy was to focus on companies that were market leaders in selected growth-
oriented sectors and to engage closely with the acquired companies to foster their growth. The
firm’s local knowledge and network was critical in getting and executing deals, and enabled it to
deliver outsized returns. By 2011, Abraaj had raised six additional funds, including two funds

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 3

over $1.5 billion, bringing assets under management (AUM) to over $6 billion and broadening
the firm’s geographical scope to the entire MENASA region, including Turkey. As the firm
continued to grow, Abraaj’s management increasingly focused its attention on building strong
corporate governance and strengthening human capital within the firm.1

Merger with Aureos

In 2012, Abraaj Capital merged with Aureos Capital, a private equity fund manager focused on
investing in small and medium-sized companies (SMCs) throughout Latin America, Asia, and
Sub-Saharan Africa. The newly formed entity was called The Abraaj Group and had $7.5 billion
in AUM and a combined portfolio of 153 investments in over 30 countries (see Exhibit 2).

From the perspective of both firms, the merger took advantage of shared goals and overlapping
strengths. Each wanted to be a world-class private equity firm dedicated to the mid-market space
in their regions. Abraaj executives believed that SMCs would capture much of the forecasted
growth in emerging markets and the firm had raised its first fund dedicated to SMC investing.
The Aureos team, meanwhile, was known for its skill in investing in SMCs. Reflecting on the
rationale for building the combined platform, Sev Vettivetpillai, former executive chairman of
Aureos Capital and an Abraaj Group executive committee member, said:

At the time of the merger, Aureos was focused on the lower end of mid-cap and
Abraaj was strong on the higher end of mid-cap. It was clear that it was only a
question of time before they would meet each other in the middle. The bulk of
deals in these markets are between $10 million and $100 million and as a
combined entity with established teams on the ground we would have the best
access to them. Larger deals attract all the major and regional players; however
you cannot do deals in this [middle] range by fly-in and fly-out deal teams.

With Aureos already an active force in markets where Abraaj wanted to expand, Abraaj had a
strong case for acquiring this firm. Aureos had built a strong local presence and network in its
markets since the early 1990s, which meant Abraaj did not need to go into these markets and
build a base from scratch. Overall, Abraaj’s leadership team thought that their capital resources,
global relationships and well-regarded professional staff, combined with Aureos’s local
investment teams, respected environmental, social, and governance (ESG) practice, and
extensive experience evaluating growth market SMCs, would help create a truly global scale and
platform.

The management’s approach to the merger was to build the best teams and processes by drawing
on resources from each firm; they did not focus on who was the acquirer and who the target. For
example, the head of IT systems came from Aureos and the head of finance from Abraaj.
Cultural similarities between the two firms also contributed to the success of the merger. Both
firms placed a big emphasis on entrepreneurial development and responsible investing. Tom
Speechley, a partner and an Abraaj Group executive committee member who had worked on the
merger, noted the importance of a good cultural fit between the firms in ensuring a smooth
merger:

1
The preceding two paragraphs are informed by Josh Lerner and Ant Bozkaya, “Abraaj Capital,” HBS No. 9-809-
008.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 4

Value in the broadest sense is created over many years and it is more than
financial. In our firm, it encompasses a belief in doing right in the communities
we invest in, not simply doing well for ourselves. Since inception we have
supported over 100 NGOs and platforms globally, organizations like Endeavor or
Junior Achievement, financially and with our time. These initiatives truly bind
people together more than short-term personal profit goals. Today it’s not easy to
work out which of us came from Aureos and which from Abraaj.

The merger with Aureos resulted in Abraaj’s footprint reaching around the entire southern
hemisphere, encompassing markets across Latin America, Africa, the Middle East, Central Asia,
the Indian subcontinent, and the ASEAN countries of Southeast Asia. Most importantly, this
was not just a physical expansion; Abraaj was taking in teams that had been on the ground in
these countries since the early 1990s and had developed deep local knowledge and networks.
Post-integration, the company included people who had the ability to discern local opportunities
and risks, and to predict which companies, big or small, were destined for long-term success.

Combining this knowledge base with Abraaj’s capital resources and deal expertise created a
global platform with massive synergies and value proposition. After the merger, local Aureos
teams had additional capital, along with the broader skill sets, deal expertise, and best practices
to execute larger deals. Now Abraaj teams in different countries could learn from each other’s
experiences and link with each other in ways that would spur new value creation opportunities.
For example, when Abraaj was planning to invest in a dairy business in Turkey, the CEO of a
portfolio dairy company in Kenya could help the Turkish team complete due diligence.
Similarly, once acquired, the same Turkish company could use a grocery store chain in the
portfolio to channel its products to broader markets. People who had complementary knowledge
and skills could come together and collaborate in many creative ways. Abraaj focused on
engendering this type of collaboration so that all of its investments could tap into the skill sets
they needed.

Success Factors

Several key factors contributed to Abraaj’s success and spurred its emergence as a global PE
firm. Chief among these, perhaps, was the leadership’s focus on attracting the best talent and
building a strong institution with good governance and transparency. Abraaj started with a group
of people who had extensive investment experience and knowledge in the regions to which they
had dedicated themselves. Their success in early investments earned them the strong trust of
their core investors, who encouraged the firm to expand further and were willing to follow it
wherever it went. As a firm focused on growth markets, Abraaj’s success necessitated
geographical expansion. While investors were willing to commit more funds, focusing on a
limited geographical area—where there was not significant deal flow on a stand-alone basis—
would inevitably increase investment risks. Abraaj’s growth enabled it to capture opportunities
in growth markets, while diversifying the exposure of its investor base and controlling
investment risks. Abraaj’s unique position as a well-capitalized firm, compared to its
competitors, also contributed to its growth. The equity capital raised at the time of the firm’s
founding—which was increased in 2006—continued to compound through its investment

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 5

success.2 This provided resources to build a strong management platform and local teams—and
to fund expansion to new markets even before new funds were raised.

Attracting the best talent proved to be an important factor. As a global firm, Abraaj had far more
resources to award talent in comparison to other local firms. Abraaj’s teams also thrived on the
autonomy they were given to make local deals, as well as the chance to work on larger and more
complex deals across regions. Selçuk Yorgancıoğlu, who formerly served as CEO of the
Deutsche Bank’s operations in Turkey before joining Abraaj as partner in 2008, said:

We have resources and experiences that a purely local investor would not have
and access and insights that a purely global investor would not have. This makes
people want to come and work for you. All my colleagues come from reputable
institutions in London and Wall Street and they are all locals…. We get to hear
what colleagues are doing across the globe; there is a lot of learning and cross
selling between teams. And we still have very interesting growth opportunities
ahead of us.

FIRM GOVERNANCE AND DECISION MAKING

Aware that commanding and maintaining the trust of its investors was critical to its business,
Abraaj’s leadership actively pursued best practices for corporate governance and transparency.
In 2006, for example, the firm became the first in Dubai to voluntarily submit to the supervision
of the Dubai Financial Services Authority. Following the merger with Aureos, an important area
of focus for the firm’s leadership was to continue building Abraaj as a strong institution.
Vettivetpillai explained:

In the last two years we have transformed Abraaj into an institution that can
outlast any of our lifetimes. Abraaj today is a well-organized group with best-in-
class governance structures—with an independent board, risk and compliance
committee, and other governance structures. We have built systems and
processes that can manage two to three times the assets Abraaj is managing today.

The firm operated as a corporate entity in terms of reporting lines and responsibilities. Partners
based in hub cities managed the country teams in the regions, and reported to CEO Naqvi, who
was supported by an executive committee chaired by partner Mustafa Abdel-Wadood. A
separate Board of Directors, which included independent members and some of the executive
team members, oversaw the overall group’s activity and performance. Investing and other
important group activities were decided and overseen as a partnership with dedicated
committees.

Investment decisions required approval through two layers of governance: at the regional level,
the senior members of the regional team decided which deals to pursue; at the global level, each
deal also had to be approved by the firm’s Investment Committee, both at the beginning and at
the end of the deal. The goal was to ensure that even as the firm benefited from the best local

2
In 2015, Abraaj’s balance sheet was capitalized at around $1.5 billion and the Group contributed an average of 10
percent to each new fund it raised.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 6

and regional thinking, the firm maintained a common underwriting standard across all markets
and investments.

The Abraaj leadership was well aware that the firm’s global scale and layered management could
lead to bureaucratization—and the stifling of its entrepreneurial spirit. They knew that ideas,
innovation, and good deals came from the bottom up and wanted to ensure that channels
remained open not only between local offices and global centers, but across all regions. As of
early 2015, the firm’s five regional hubs assumed responsibility for the administrative workload,
which freed the regional offices to focus on deals. The company also made extensive
investments in IT infrastructure, with the goal of facilitating collaboration and knowledge
sharing across the platform. The cloud-based IT system was intended to accumulate all the
combined data and experience across the firm, allowing anyone who needed the information to
access it from anywhere in the world. A new deal logged into the system, for example, would
then flag up all the previous deals in that particular sector or geographical location, and refer the
professional to relevant colleagues, investment papers, due diligence reports, and other
resources. Abraaj also created a virtual network amongst the portfolio management teams across
its regions, enabling them to share their learning and, potentially, to develop business
relationships.

FIRM FOCUS AND STRATEGY

Abraaj’s overarching investment thesis was fundamentally a bet on emerging growth economies.
The firm believed that demographics and urbanization were driving a fundamental change in
consumption in these markets. This, in turn, offered once-in-a-generation opportunities,
especially for companies in consumer services and products. The Abraaj Group’s deals—mid-
market buyouts mostly in the $20 million to $200 million enterprise value range—generally
involved minimal investment leverage or financial engineering, so Abraaj focused on EBITDA
growth through operational improvements and market expansion as the main channel of value
creation. Professionalizing and scaling the business usually led to multiple expansions at the
time of exit as well. Abraaj did not have an overarching sector focus but it aimed to identify the
sectors and industries most likely to grow (e.g. due to macro or regulatory changes) anywhere it
invested. It then sought out the companies it expected to be winners in those typically
fragmented sectors and partnered with them. If all went as planned, these companies would then
be transformed into the sector winners and, potentially, regional champions.

Speechley acknowledged that this strategy had developed out of the firm’s experiences in its
target markets, and could change as these markets continued to evolve:

We are motivated by finding the best risk-optimized investments…. in most of

our markets today that means mid-market growth equity because although some
companies have reached a critical mass no clear sector winner has yet emerged
and scaled up. These companies are looking for a value-added partner to go to the
next stage and become the sector champion. The size of each deal is largely a
function of the corresponding opportunity set in the target sector and geographic
market and we size and raise our funds accordingly…. As more sector winners
emerge down the line the opportunity may morph into more of a buyout
opportunity and we will then focus more in that space.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 7

Global and Local: Abraaj’s Competitive Advantage

Abraaj gained a strong competitive advantage through its unique combination of the deep local
knowledge and insights that came from having a strong local presence, with the scale and
resources of being a global firm. The marriage of the two gave Abraaj an edge that neither
purely local nor purely global firms possessed. In the markets where it operated, extensive local
knowledge and networks were critical for finding good deals, valuing them, conducting due
diligence, and properly assessing risks. Abraaj invested through its local teams, which were
primarily formed of people from that country. Being part of the local ecosystem, they tended to
have extensive networks that led them to proprietary deals with favorable structures and
contractual rights. They were able to communicate and deal better with their counterparts and
portfolio companies.

The advantages Abraaj gained by being local were buttressed by the multiple benefits that came
from being a large-scale global firm. Abraaj had a much larger fundraising ability, deeper deal-
making expertise, and enhanced resources. Its scale as a global firm created multiple synergy
opportunities among different deal teams and portfolio companies through all the phases of the
private equity deal cycle. Abraaj could afford to maintain a large centralized operations team to
guide its portfolio companies’ growth efforts. The firm’s cumulative investing experience
enabled it to assess and recognize the quality of deals—and structure and negotiate investments
so as to achieve effective control, even when it was in a minority position. As a firm focused on
multiple markets, Abraaj could be selective about the deals it chose in any single market. The
firm implemented global standards for due diligence and underwriting, which arguably increased
the quality of deal making and reduced the risk.

One of the key benefits of this scale was that it created a massive knowledge-sharing platform.
The firm connected people and ideas across many countries in many creative ways. On many
occasions, management teams from one investment or country helped the firm conduct diligence
or formulate exit opportunities for an investment in another country. When a portfolio company
wanted to expand to neighboring countries, the local teams in that country provided support and
helped identify the best strategies, targets, and partners. If someone came up with a great idea in
one country or region, it could be transmitted and replicated in other regions; if one partner
company or “ParCo,” as Abraaj calls its portfolio companies, came up with a creative approach
or solution to a problem, it could be transferred to other companies.

Yorgancıoğlu emphasized that being part of a larger global firm did not put his team in any
disadvantaged position in comparison to local competitors:

People love making transactions and they look the other way when there is a
problem. The oversight by the global Investment Committee enables teams to
avoid that risk…. provides valuation comparisons, reviews contractual rights….
For our team this is an enhancing factor for our business and it shows in our
returns. Also, being part of a global team helps us manage the local headcount.
This is a great advantage for the country team.

Several factors would make it hard for both local as well as major global firms to replicate
Abraaj’s model. Maintaining a global platform with all its support functions required resources

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 8

that smaller local and regional funds did not have. Abraaj spent the bulk of the fees received for
its AUM to maintain this type of platform. On the other hand, even though the major global PE
firms had the resources, their ability to compete with Abraaj in these markets was limited by the
lack of local capacity, as well as their strategy of focusing chiefly on larger transactions. Even
though these funds had resources, the long lead times required to build local capacity often
proved to be a significant barrier.

THE PHASES OF THE DEAL

Target Portfolio and Deal Sourcing

Abraaj’s funds were regional, and each had to be diversified according to size, country, and
sector (see Exhibit 3). To assess the overall opportunity and risk of its funds—and quantify
each investment’s contribution to overall portfolio risk—Abraaj used an internally developed
methodology called the target portfolio tool. The program included detailed parameters for each
investment such as size, stake, holding period, target returns, exit, sector, and foreign exchange.
Before a fund was raised and deployed, managers assessed what type of investments were
available, given Abraaj’s investment strategy, what type of portfolio could be formed with the
aimed return, and how different investments would shape that portfolio. They then formed a
theoretical portfolio that would achieve the fund’s target return within the set risk limit. Once
the funds were raised and the firm started investing, it used the tool dynamically to assess how
portfolio risk and return expectation were evolving and how they could be adjusted. The target
portfolio tool was an important line of defense in Abraaj’s management of its investment risk. It
ensured that funds were sized for the available opportunities and that every investment was
vetted both at the deal and portfolio level. It also helped managers make certain that different
funds were performing on par (and differences among them were not significant) and allowed
them to weigh, and keep an eye on, critical investments that could significantly impact the fund’s
overall performance.

Abraaj’s teams had been present in the countries where the firm invested for many years and
were deeply networked within the local business ecosystem. This gave them access to
investment opportunities unavailable to outsiders. For example, two deals made in Peru were
personally sourced by Abraaj’s country head, Hector Martinez, who had been schoolmates with
the entrepreneur in the initial deal; this entrepreneur then introduced Martinez to the advisor of a
second company during a golf game, and Abraaj went on to invest in that venture.

About four of every five of Abraaj’s deals had been proprietary and in the case of sub-Saharan
Africa this rate was even higher, at over 90 percent. In addition to local connections, another
factor shaping the proprietary deal flow was the nature of these deals. In the markets where
Abraaj operated, entrepreneurs or owners often needed growth capital and were seeking a value-
added partner for growth, rather than the highest sales price. In such situations, they were much
less likely to appoint an intermediary or commence an auction; indeed, in many cases, the
entrepreneur-run or family-owned businesses were bringing in an outside shareholder for the first
time and did not want the transaction to be widely publicized.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 9

Abraaj’s Turkey country team had concluded seven deals, all of them proprietary. Yorgancıoğlu,
who headed the Turkey and Central Asia region, explained how his team was able to source
these deals:

I have a motto I repeat to my colleagues: I want to see mud on your shoes.

Everyone in the team needs to be out sourcing deals and coming back with ideas.
We have weekly origination meetings in the team and all investment team
members present and discuss ideas, provide and receive feedback. We had been
looking into buying into the dairy industry for some time and had identified
Yörsan as a target. This was a conservative group that had never worked with
investment bankers. We found friends whom they liked and trusted; through their
introduction we met the family and the chairman, actually, in a family setting…

They chose to partner with us because they had heard about our reputation and
our proven ability to create value. We explained to them how we could use our
global platform to promote and expand their business and they were impressed.
You cannot originate a deal like this by hopping on a plane from London or New
York and spending 24 hours. Our competitors heard about the deal when the
Turkish Competition Authority announced the acquisition approval filing on its
website.

Fundraising and Fund Structure

Abraaj’s continuing success in fundraising was predicated on a combination of factors that

included its track record of high returns, strong local experience and presence, scale, and
adherence to high ESG standards. Abraaj had an established record of providing returns and
completing exits. For more than ten years, across all of its investments since inception, Abraaj
had generated around 17 percent net return to investors3 and had a DPI ratio (distributions to paid
in capital) in excess of 0.9x. As Yorgancıoğlu explained it, “When I meet a potential LP, the
conversation is about how much money we have returned, it is not about projects and how
successful we will be in the future. We are already successful.” The LPs also seemed to find
reassurance in the firm’s deep—and proven—understanding of difficult and complex markets.
In many countries, Abraaj had the longest presence of any PE firm, with on-the-ground staff who
had seen and survived numerous economic cycles. These country offices were involved in the
fundraising process “from A to Z,” as Yorgancıoğlu put it, as institutional investors wanted to
see who would deploy their money, and how. Abraaj also had a strong record on governance
and it offered a scale that was especially appealing to large investors. With Abraaj, large
institutional investors could invest significant amounts in the middle market in the region(s) of
their choice. Most of these large investors had less interest in making small commitments to
individual PE firms, as such small investments would have a minimal impact on their overall
performance. In comparison to local funds, the regional structure of Abraaj’s funds also enabled
the LPs to avoid concentrated portfolios.

Abraaj’s third-generation Sub-Saharan Africa fund (AAF III) was a good example of how the
firm planned and executed its fundraising. The fund was raised in less than a year and closed

3
This data includes unrealized gains.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 10

above the initial target of $800 million. There was a diversified mix of investors, with around 65
percent coming from North America and Europe and the remaining commitments spread across
Africa, the Middle East, and Asia. Pension funds and sovereign wealth funds were the biggest
investor groups, followed by significant commitments from financial institutions, family office
and high net-worth (HNW) individuals, and development finance institutions (see Exhibit 4).
The fund was structured on a 2/20 basis with Abraaj taking a 10 percent GP stake. The fund was
sized to match the expected opportunity in the region. According to the target portfolio tool,
AAF III would be targeting 16 investments in the $20 million to $100 million range, of which
two or three transactions would be platform investments with a target range of $80 million to
$135 million. The firm also expected to require co-investment capital to round out the entire
investment strategy for the fund.

Speechley contended that the Arab Spring, which scared most investors away from the Middle
East in 2011-2012, did not have a major impact on Abraaj’s operations:

We just exited an investment we made in Tunisia in 2012 in the baked goods

space. We made more than 3.5x (gross) on that investment at an IRR of over 80
percent (gross) and sold the company to a European major—all in the context of
post-Arab Spring Tunisia. I submit that this comprehensively demonstrates that if
your strategy and execution are sound, even political upheaval need not
negatively impact returns… by targeting the consumer segment in defensive
sectors, by picking the “right company” in that sector and by structuring the deal
appropriately you can avoid headline risks often associated with these markets.
Overall, MENA [Middle East and North Africa] is just one of five regions we
invest in today.

Due Diligence and Deal Structuring

Abraaj’s approach to due diligence was based on two core elements: application of uniform
global best practices in all markets; and checks based on extensive local knowledge. Applying
the same underwriting standards everywhere helped minimize investment risk. This approach
reassured investors that they could rely on the same standards and principles across all funds and
regions, thus encouraging them to invest. Speechley explained how the investment process was
uniform across the platform:

The types and level of due diligence, structuring, valuation science, execution,
and so on are the same everywhere. We apply the best standards globally even in
markets that perhaps would not expect that. We use the same techniques and
processes in our investments as a leading U.S. firm would apply and we appoint
the best advisors to carry out third-party due diligence, because that’s not a
compromise we wish to make. In a sense we are bringing in world-class
standards even where they don’t exist locally.

Since firm and market data were insufficient in most countries where Abraaj invested, the firm
relied instead on the experience garnered over years of analyzing and investing in similar
businesses. The process of due diligence was further strengthened by the Abraaj team’s local
knowledge and networks, and by the participation of the Abraaj Performance Acceleration
Group (APAG), the firm’s dedicated operations team. “These professionals can recognize what

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 11

‘good’ looks like both in a local sense but also in the global sense,” explained Speechley. In the
process of conducting due diligence, Abraaj spent considerable time with the management team
and expected any team it backed to possess a detailed knowledge as to why they had
succeeded—and to be capable of articulating this—and to have the skills and commitment
required to take the company to the next level. The firm also made the effort to know partners
personally. “We spend a lot of time with the partner,” explained Yorgancığlu. “You need to see
how the entrepreneur treats people around him or her and the employees. It is very important.”

Abraaj used minimal financial engineering and leverage in its deals. This was mostly predicated
by the types of deals, as the firm focused more on growth capital instead of buyouts. Although
this meant minimal return from leverage, low leverage reduced investment risk and gave Abraaj
more flexibility in its relationship with portfolio companies. As of June 2014, Abraaj’s loss ratio
was under two percent on around $5 billion capital deployed. Abraaj often structured its
investments in a manner that would yield cash distributions over time, generally through the use
of preferential convertible income notes. This helped reduce risk in the investment prior to exit,
provided a good base level of annual return, and helped mitigate foreign exchange risks.

When it came to the ownership structure of the deal, Abraaj adopted an agnostic approach.
While Abraaj was willing to take a minority stake, Speechley noted one important caveat:

What is common with all our investments is that we require the “right to control
the growth agenda” of the company. The decision to be a minority or majority
investor is made on a case-by-case basis, and depends in part on its perceived
impact on the value creation plan… We very rarely have material issues with
management post-investment because we spend so much time before the
investment working through the issues and the solutions, building an agreed value
creation plan that we all sign on to, to that extent we are less worried about having
to legally enforce clauses in the shareholder agreement.

Managing for Value

Helping portfolio companies to create value and reach their maximum potential was the core of
Abraaj’s investment strategy. The bulk of Abraaj’s returns came from earnings growth,
according to Speechley. He explained:

EBITDA growth is by far the largest contributor because we invest in high growth
companies. They are often growing at 20 percent plus per annum in revenue
terms and that is generally matched, over the full investment cycle, by a similar or
greater proportionate growth in profitability. We are often scaling companies
both domestically and internationally. One great insight we have seen is that even
mid-market companies can scale internationally. The skill is all in the execution
and here again having on-the-ground teams in the expansion territories is critical.

During the due diligence and deal structuring processes, Abraaj worked with the management
team to create a “value creation plan” that spelled out value drivers of the investment and
planned changes. The key was to reach agreement with the owners and management team on
this plan—indeed, partners contend that without such agreement, there would be no deal. In
many cases, Abraaj’s track record of adding value to its investments proved to be what made

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 12

companies seek the partnership. The plan was created with the partner through collaboration,
rather than coercion, and thus helped to address head-on such major risks as a lack of alignment
or compromised governance. This plan prioritized “critical success factors” and established a
100-day program for setting these in motion.

Abraaj’s dedicated operations team—APAG—worked hand-in-hand with investment

professionals on the ground throughout this process. The head of APAG, Wahid Hamid, a
former senior executive at PepsiCo, was a member of the Global Investment Committee,
reflecting the importance of operational focus in any given investment. APAG members were
generally managers who had spent a substantial part of their careers running well-established
companies that operated in markets where Abraaj invested. They used their accumulated
experience and insight to help the portfolio companies in a number of significant ways. They
helped companies identify and pursue growth opportunities, reduce costs, build and
professionalize human resources, and strengthen corporate governance. They also acted as
facilitators for knowledge transfer between different country teams and portfolio companies.
These efforts multiplied the firm’s value beyond EBITDA growth. Once a company had been
scaled and institutionalized in terms of governance and systems, the market would usually
reward Abraaj with a higher multiple than it had paid at the time of the investment.

Realizing Value: Exits

Exiting private equity investments in emerging and frontier countries can be difficult due to the
underdevelopment of capital markets and lack of strategic buyers. However, Abraaj had set a
high bar among its peers by realizing over 70 full or partial exits from over 150 investments in
these markets. Several factors seem to have contributed to this success—picking high-quality
investments, growing and scaling the companies, approaching exits as a systematic and
streamlined process, and cross-selling opportunities borne of Abraaj’s global reach.

A critical aspect of Abraaj’s exit strategy was its initial choice of companies in which to invest.
“You can always exit a successful company,” said Yorgancıoğlu. “It comes down to buying the
right company, implementing the right growth strategy, and preparing it for the exit… You need
to see the exit when you buy into a company.” Exit opportunities were further enhanced by
Abraaj’s investment approach. Abraaj often chose to invest in leading companies in sectors that
were poised to consolidate further; the target companies would become part of the consolidation,
either as the consolidator or as a consolidatee. In fact, the largest share of Abraaj’s exits were
strategic trade sales to national, regional, and international consolidators. Strategic players
seemed to be willing to pay the premium to acquire companies from an established PE firm as
they found these companies’ governance, reporting, and management more reliable. The firm
also saw increasing interest from other PE firms; secondary buyouts were becoming common,
and occasionally it sold its stake back to the entrepreneur or family with whom it had partnered.

Abraaj approached the matter of exits with a combination of discipline and flexibility. Exit
scenarios and timelines were regularly reviewed. “When we invest we assume a holding period
of up to five years,” explained Vettivetpillai. “But even if we identified what the exit will look
like, that doesn’t stop us—we regularly review every partner company and ask is the exit
relevant now? Sometimes holding for another two years will not move the needle significantly
at the fund level.” Discussions related to potential exits for the portfolio companies involved all

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 13

the Abraaj regional teams and took place formally semi-annually, in addition to the regular on-
going reviews by portfolio managers. These reviews consumed considerable time, but also
prompted important insights. “We go over the whole portfolio,” explained Vettivetpillai.
“That’s the time when great ideas emerge, when people say that company can be helpful to mine,
or we know a solution. That’s the time when we connect the dots between the two partner
companies or two markets.”

FOCUS ON RESPONSIBILITY

Abraaj placed strong emphasis on adherence to good environmental, social, and governance
practices and included ESG as part of its investment evaluation. The firm also developed the
Abraaj Sustainability Index, a proprietary measurement tool to track the progress of each
portfolio company, using 42 metrics that included financial, economic, environmental, and social
practices. Unlike other major private equity firms, Abraaj was not shy about publicity and spent
considerable resources on its engagement with local communities and implementation of
corporate social responsibility (CSR) projects both at a management level and by encouraging a
similar approach from its portfolio companies.

Abraaj’s leadership believed that these efforts made good business sense. ESG and CSR
activities made Abraaj an attractive platform for investors, and also accelerated the portfolio
companies’ business performance, enhanced their ability to operate in local communities by
creating goodwill, and ultimately increased valuations. These types of activities were directly
linked to financial results. Speechley explained that “doing good” did not imply a trade-off
against returns:

Because we are generating returns by growing companies, the objectives of our

investors and the objectives of the economies in which we invest are aligned. We
create employment, corporate profits, taxes paid; we encourage gender equality,
improve governance, improve health and safety at work, and actively encourage
community participation in all our investments. Not only is it the right thing to
do, it’s good business. Companies that perform well on these metrics tend to be
well-run and efficient companies. They tend to outperform their peers and so we
actively encourage—or require—all of these aspects of performance alongside
profitability.

Last—but certainly not least—the Abraaj leadership had a strong desire to make a positive
impact on the communities in which the firm invested. “Private equity in our markets can and
should be a force for good,” said Vettivetpillai, “not simply a mechanism to make money for one
set of stakeholders.” He noted that in most of the markets where Abraaj operated, only 5-10
percent of the people had a reasonable standard of living, while the vast majority lived in
poverty. He concluded, “We are privileged and we feel that it is right to give back to the
community.”

CASE IN POINT: ACIBADEM HEALTHCARE GROUP

Abraaj’s investment in the Turkish Acibadem Healthcare Group provides a good example of
how the firm’s business model worked in practice. Abraaj’s strong local presence and global

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 14

capabilities enabled it to invest in the leading private hospital group in Turkey, scale and
improve it, and then exit it through the sixth largest IPO globally in 2012.

Sourcing the Deal

Abraaj had identified the private health care sector as a potential investment area in Turkey for
several reasons. Turkey’s health care metrics lagged many of its European peers, while the
country’s increasing population and per capita income suggested that private health care demand
was poised to grow in coming years. Turkey already attracted many patients from neighboring
regions and the potential for increasing medical tourism was high. In 2007, the Turkish
government passed a new health insurance law to incentivize the private sector to fill the gap in
health care supply, with the government providing individual subsidies to anyone wishing to
purchase private health insurance. This development was expected to boost the private health
care sector and Acibadem, as the leading player, was well positioned to take advantage of this
opportunity.

Established in the early 1990s with a single facility, Acibadem Healthcare had by 2007 grown to
six full-service hospitals and six outpatient clinics and was the leading private health care service
provider in Turkey. It had high-quality products, strong management, excellent infrastructure,
and the experience required for future growth. Acibadem provided extensive health care services
in its purpose-built and JCI4 accredited hospitals. With its excellent infrastructure, strong brand
equity, experienced management team and strong network of ancillary businesses, Acibadem
offered an ideal platform to expand private health care services in Turkey. The company’s
founder, Mehmet Ali Aydinlar, had an aggressive growth plan and was looking for growth
capital, making Acibadem appear to be a good fit for Abraaj. However, there were other
interested partners and Aydinlar was also considering bank financing. His ultimate decision to
choose Abraaj was due to the firm’s track record in growing portfolio companies, and strong
presence in the countries where he hoped to expand Acibadem. Abraaj’s partners were able to
connect and build a personal relationship with Aydinlar—these meetings also played an
important role in persuading him to choose Abraaj. The deal was signed in late 2007.

In addition to Acibadem Healthcare, Acibadem Healthcare Group comprised three separate

companies engaged in ancillary operations that complemented the business chain—a health
insurance company (Acibadem Insurance), a health care facilities management company (APlus)
and a health care design, construction, and medical equipment procurement company (APM). In
order to be fully aligned with Aydinlar, Abraaj invested in all four businesses. The deal was
completed in a series of transactions which rolled over Aydinlar’s shares in all four companies
into two holding companies in which Abraaj and Aydinlar had equal stakes.

As part of the investment, Abraaj secured a $200 million committed capital expenditures facility
with attractive terms for Acibadem that was primarily used to fund the construction of new
hospitals and refinance existing debt.

4
JCI (Joint Commission International) is a U.S-based not-for-profit organization that accredits health care
organizations around the world based on quality standards and patient safety.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 15

Value Creation

During the holding period, Acibadem Healthcare’s network expanded from six hospitals with
750 beds in 2007 to 14 hospitals with more than 1,800 beds by 2011. Revenue and EBITDA
grew by 2.6x and 3.4x over this period in Turkish Lira terms (see Exhibit 5). Prior to the
transaction, Abraaj worked with the management team and identified several improvement areas
in its value creation plan for Acibadem. Immediately after the deal was closed, Abraaj placed a
CFO and a business development analyst in Acibadem. Abraaj helped the company to upgrade
its business process planning, strengthen its management team, improve the management
reporting system, and enhance corporate governance standards. The operational and financial
support provided by Abraaj helped Acibadem Healthcare to diversify into new specialty health
care practices such as sports medicine, purchase advanced medical equipment, and focus on
medical tourism, which attracted significant numbers of patients from the region. An enterprise-
wide purchasing system was implemented to reduce costs. In order to further increase the
quality of care, Acibadem upgraded its facilities to meet the highest health care and safety
standards. Abraaj mandated regular inspections of the facilities to make sure these standards
were maintained. The capital expenditures facility secured by Abraaj as part of the transaction
was utilized to finance the opening of new hospitals. In addition to organic growth initiatives,
Abraaj helped to identify and execute the acquisition of four add-on hospital facilities, including
the company’s first hospital outside of Turkey. In addition to Acibadem Healthcare, Abraaj
worked closely with the management of the three other Acibadem Healthcare Group companies
to support their operational improvement and expansion.

All strategic decisions were taken with Aydinlar at the board level; new committees were formed
to improve decision making and governance. The key factor that helped Abraaj execute its value
creation plan was clear alignment with Aydinlar on the company’s growth agenda and exit
prospects. Aydinlar acknowledged the added value that these improvements would bring to the
business and welcomed partnership with Abraaj to achieve them. Maintaining good personal
relationships and communications throughout this process was also critical.

Exit

Having achieved its growth milestones, Abraaj decided to exit its Acibadem investment in 2011.
Given the large size of the transaction, it was expected that the potential investor would be an
international player and Abraaj involved two major global investment banks as sell side advisors.
However, ultimately the exit opportunity was sourced through Abraaj’s own platform. In one of
the partner meetings, Omar Lodhi, who ran the Group’s Southeast Asia region from Singapore,
suggested that International Healthcare Holdings (IHH), a dominant private health company in
that region, and its parent, Khazanah Nasional, the sovereign wealth fund of Malaysia, might be
interested in the opportunity. The Singapore office acted as a mediator with Khazanah and IHH,
and a deal was reached.

Abraaj sold its entire stake in Acibadem Healthcare, APlus and APM to Khazanah and IHH for a
consideration of 50 percent cash and 50 percent shares in IHH in January 2012. While Abraaj’s
Istanbul team was working on the sell side, the Singapore team was overseeing the buy side due
diligence for the share consideration that Abraaj would receive in IHH. It was known at the time
of the deal that IHH would seek an IPO soon and Abraaj sold its entire share six months later in

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 16

July 2012, when IHH completed dual listing on the Singapore and Kuala Lumpur stock
exchanges. The listing raised $2 billion, making it the sixth largest IPO globally in 2012. The
transaction also involved a foreign exchange adjustment mechanism to compensate for the
significant depreciation in the Turkish Lira just prior to the signing of the definitive agreements.
The parties agreed to recalculate transaction proceeds in U.S. dollars if the Lira appreciated post-
closing, and as such Abraaj and Aydinlar received an additional consideration later in the year.
The insurance business was sold separately in 2013 to Khazanah through a competitive auction.

Aydinlar kept 25 percent of his stake in Acibadem and received a seat on IHH’s global board,
overseeing the operations of the second-largest publicly traded health care services company
globally at the time.

LOOKING INTO THE FUTURE

The success of the last decade was something to celebrate, but Abraaj’s senior management was
also aware of the challenges that lay ahead. The opportunities facing the firm were abundant and
tempting. Notwithstanding the negative headlines here and there, Abraaj’s target markets were
growing fast, attracting widespread investor interest. Abraaj’s track record and platform
positioned it to take advantage of the unique opportunities. But, Naqvi and his team knew that it
was equally important to keep a foot on the ground and look over their shoulders to keep the
momentum for success moving forward.

As its target markets grew and diversified, Abraaj could seek to keep up with the investment
opportunities by adding more capital and resources. It could raise more funds, and potentially
expand its local presence by setting up new country offices and hiring new managers. The right
timing of any such expansion was key to maintain the firm’s overall returns and avoid increasing
investment risks and incurring unduly costs. While growing its teams across the whole globe,
Abraaj had to make sure that they all performed at the same level, as any mismatch between
teams and regions would put a question mark on the whole premise of its platform. To keep
these risks at check, as the firm grew bigger, it would need to strengthen its global governance
mechanisms and constantly streamline its uniform practices. Inevitably, perhaps, in the absence
of a crystal ball, the Abraaj team was left pondering the questions that had no easy answers.
Would growing larger require Abraaj to sacrifice some of the core elements of its competitive
advantage? How could the firm avoid bureaucracy and maintain its entrepreneurial spirit while
growing? How could Abraaj preserve the autonomy and agility of its local teams through this
journey?

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 17

Exhibit 1
Geographical Footprint of The Abraaj Group

` ` ` ` `
Latin America Sub-Saharan Middle East & Turkey & Central Asia
Africa North Africa Asia

13 investments 57 investments 39 investments 7 investments 45 investments

3 full/partial exits 30 full/partial exits 16 full/partial exits 4 full/partial exits 24 full/partial exits

Middle East &

Latin America Sub-Saharan Africa Turkey & C. Asia South Asia
North Africa
3 offices 4 offices 7 offices 2 offices 7 offices
1 Regional Head 1 Regional Head 1 Regional Head 1 Regional Head 1 Regional Head
3 Managing Directors 1 Partner 1 Partner 2 Managing Directors 4 Managing Directors
6 Managing Directors 4 Managing Directors

Total Professionals 14 Total Professionals 26 Total Professionals 29 Total Professionals 11 Total Professionals 28

Hub: Mexico City Hub: Nairobi Hub: Dubai Hub: Istanbul Hub: Singapore
• Colombia • Ghana • Algeria • Kazakhstan • Brunei
• Peru • Nigeria • Egypt • Indonesia
• South Africa • Morocco • Philippines
• Palestine • Thailand
• Saudi Arabia • India
• Tunisia • Pakistan

Source: The Abraaj Group.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 18

Exhibit 2
The Abraaj Group, Fund History

Vintage Fund Investment Geographic Deployment

Fund
Year Size Focus Focus Status

Latin America

Mexico, the
Growth Capital
Aureos Latin America Fund 2008 $184 Andean Region & Fully Deployed
and Buyout
Central America

Sub-Saharan Africa

Aureos East Africa Fund 2003 $40 Growth Capital East Africa Fully Deployed
Aureos Southern Africa Fund 2004 $50 Growth Capital Southern Africa Fully Deployed
Aureos West Africa Fund 2004 $50 Growth Capital West Africa Fully Deployed
Aureos Africa Fund II 2008 $381 Growth Capital Sub-Saharan Africa Fully Deployed

Middle East and North Africa (incl. Turkey and South Asia)

Growth Capital Principally GCC &

Abraaj Buyout Fund 2002 $116 Fully Deployed
and Buyout Levant
Growth Capital MENASA &
Abraaj Buyout Fund II 2006 $500 Fully Deployed
and Buyout Turkey
Infrastructure & Growth Growth Capital MENASA &
2007 $2,000 Fully Deployed
Capital Fund and Buyout Turkey
Growth Capital
Abraaj North Africa Fund I 2008 $151 North Africa Fully Deployed
and Buyout
Growth Capital MENASA & Partially
Abraaj Private Equity Fund IV 2011 $1,600
and Buyout Turkey Deployed

Asia

Aureos South East Asia Fund 2005 $86 Growth Capital South East Asia Fully Deployed
India, Sri Lanka &
Aureos South Asia Fund 2006 $118 Growth Capital Fully Deployed
Bangladesh
Partially
Aureos South East Asia Fund II 2011 $250 Growth Capital South East Asia
Deployed

All figures in US$ million

Source: The Abraaj Group.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 19

Exhibit 3
Abraaj Private Equity Fund IV, Selected Investments

Network International Kuwait Energy Saham Viking

• UAE • Kuwait • Morocco • Turkey

• Leading payments • Independent oil & gas
solutions provider exploration and
• Investment Date: production
Mar 2011 • Investment Date:
May 2012
• A leading insurance
company in Africa
with a presence in 12
countries
• Investment Date:
Jun 2012
• Oilfield services
provider in Turkey,
Northern Iraq and
Eastern Europe
• Investment Date:
Jun 2012

Fan Milk International Yorsan Libstar NAHHG

• Ghana • Turkey • South Africa • North Africa

• Leading • Fourth largest • Leading FMCG player • Healthcare platform
manufacturer and branded dairy • Investment Date: composed of several
distributor of frozen producer October 2014 hospital assets across
dairy products in • Investment Date: North Africa
West Africa Jan 2014 • Investment Date:
• Investment Date: June 2014/ongoing
Nov 2013

Source: The Abraaj Group.

Exhibit 4
The Abraaj Group, Investor Base, Abraaj Africa Fund III

By Geography By Type
MENA HNWI & Foundation
2.0% Family Office 2.5%
7.7%

Australasia
15.9% Financial
Europe Pension Fund
34.2% Institution 27.4%
11.4%

SSA Consultant
17.4% and Clients
12.4%

SWF
DFI 22.4%
Americas 16.2%
30.4%

Source: The Abraaj Group.

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 The Abraaj Group: Making of a Global Private Equity Firm F-312 p. 20

Exhibit 5
Selected Data on Acibadem Healthcare

Revenue and EBITDA trends, 2006-2011

in USD, millions 2006 2007 2008 2009 2010 2011

Revenue 233.9 302.7 326.7 362.9 485.7 600.9
growth 29.4% 7.9% 11.1% 33.9% 23.7%
EBITDA 37.1 45.5 51 53.9 88.8 120.8
margin 15.9% 15.0% 15.6% 14.9% 18.3% 20.1%

in Turkish Lira, millions 2006 2007 2008 2009 2010 2011

Revenue 334.1 394.0 428.0 558.8 731.6 1009.5
growth 17.9% 8.6% 30.6% 30.9% 38.0%
EBITDA 53.0 59.2 66.8 83.0 133.8 202.9
margin 15.9% 15.0% 15.6% 14.9% 18.3% 20.1%

Source: The Abraaj Group.

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