Hidden Gems in Unexpected Places

Adam Said and Sherif Elhalwagy, founders of Swiss Private Equity fund ACE & Company, have been investing widely and successfully in the Middle East since 2005.

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ACE currently has assets under management of over $500m and offices in Geneva, London, New York, Hong Kong and Cairo. Its founders put their success down to having an established local presence, choosing co-investment partners with deep sector knowledge and, most importantly, sourcing well-run companies led by excellent management.

“We invest in technology, local consumer brands, education and pharma in the Middle East region, as these sectors benefit from the favorable demographics of the region — a young, burgeoning population and an expanding middle class. We look to invest in good businesses with very good management, regardless of the macro circumstances in the country or region,” says ACE & Company’s Elhalwagy.

“We recently came in as an angel investor in Edfa3ly — an Egyptian-run, cross-border e-commerce technology and logistics platform. Edfa3ly enables buyers to purchase goods from websites, such as Amazon and Macy’s, and have them delivered — all cleared by customs — safely to their door. You can buy anything — from car seats to clothes and appliances, from anywhere in the world.

“It’s a fast growing business, with over 50,000 subscribers in just three years; the business has doubled in size every year. We like the business, as it’s scalable beyond Egypt and the Middle East. The same solution works anywhere, so there’s a possibility of the company expanding into more established markets, like Europe.

“They have a very smart CEO who is personable, rock solid, has excellent management skills and an excellent team — they have everything working well, including customer care.”

Further afield, many Middle Eastern investors are looking to invest in Ethiopia.

“We just co-invested in Addis Pharmaceutical Factory, Ethiopia’s largest pharmaceutical manufacturing company, alongside 54 Capital. “In Ethiopia, 90% of drugs are imported. This gives Addis Pharmaceutical Factory, Ethiopia’s largest local manufacturer, a prime opportunity to increase their market share by using their domestic sales and distribution advantage.

“We really liked how Addis Pharmaceutical was run, with its products achieving high international standards. We particularly liked the caliber of the management as a whole and the quality of the individual managers. It’s more important to get good managers than anything else in this region. We look for that first.”

Another company, Tiba, is in the private education sector. Tiba is a leading education provider in Egypt, with one university, three academies and three publically supported K-12 schools.

“ACE invested last year. They have seven schools ranging from affordable primary schools through to universities. The Egyptian Government does not have enough educational infrastructure to fulfill the demands of a fast-growing population of 87 million, so it looks to the private sector to fill the gap. The macroeconomics made sense and so did the proposition that the government is looking to the private sector to outsource its education initiatives. The education sector is not always an easy investment, but Tiba has strong government support. We invested alongside Abraaj who have had previous success in investing in education in Egypt. They brought the deal to us and we co-invested alongside them.”

The education sector in Egypt is experiencing rising demand, driven by favorable demographics and a growing aspirational population, keen to invest in high-quality education for their children. Egypt is the most populous nation in the Middle East and North Africa region, and in the current academic year, there are over 20 million enrolled students nationwide, 18.3 million of whom are in K-12 schools.

One of ACE’s most successful private equity investments in the region has been Moulin D’Or — Tunisia’s leading baked goods producer. ACE co-invested in Moulin D’Or in 2012 alongside Abraaj, finally exiting in 2014.

Adam who was previously instrumental in expanding the wealth management structure, Unifund, into Saudi Arabia remembers the day he met the two founders of Moulin D’Or.

“We were looking at the local consumer market in depth. We noticed Moulin products in many key Tunisian shops and, through research, observed that they had a dominant market share. We worked relentlessly to get a meeting with the founder. I flew in for that meeting. He was a humble, hardworking person, passionate about what they were doing. He was very focused on his business and had realistic objectives. I recall he had brought in senior people he met in a business program to advise him — people with real expertise, not members of his family or local talent.

“When we approached them, they had a brand and were well known, but working capital could not fund operational expansion. Within a month of our meetings, Moulin D’Or expanded into Algeria and further into Africa.

“I remember the meeting vividly, sitting in an office attached to the factory. Two local Tunisians entrepreneurs running a cake business. They had been doing this for 30 years — so not your millennial entrepreneur. They just made cake and pastries. I remember sitting in their office as they asked: “Why are you coming to see us?”

“We explained to them they had a really good business and they could grow it even more, and they really didn’t believe it. We told them we wanted to help them grow. We said we could buy shares and, on top of that, fund growth capital. We’ll structure it for you, we can grow the factory, and I remember the guy giving me that look like ‘this doesn’t make sense, why would someone do that?’ It did make sense. By the time we exited, the company had grown four times in size.

“ACE structured it and invested alongside Abraaj, the regional PE group by excellence. That helped Moulin D’Or bring in new processes and better governance. On the operations side, they built a state-of-the-art factory, so they could increase production and consolidate their growth into other countries. They expanded beyond Tunisia into Algeria.

“Moulin D’Or’s sales grew by four times during the period of our investment. Abraaj was a strategic partner for them and us. Eventually, we sold our stake to a large European group, now Dubai-based. They are helping the company expand into neighboring countries. The company is still family run, just now better capitalized, better run, and has an even brighter future.

“I am proud of this outcome. Not just financially, but especially as this happened at a time when Tunisia’s economy and many of its companies struggled. We made a real difference for this company and its employees.

“They created real wealth, and we succeeded alongside them. Private equity is often thought of as creating wealth at the expense of others. That’s the biggest mistake anyone can make. We believe you only create real wealth when others create wealth along the way, and that’s a key lesson,” said Adam.

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