Kuwaiti companies will need to restructure or consolidate in 2009 to attract much needed capital and emerge stronger

Enlarge Image

RELATED ARTICLES

• IFC, EIB and PROPARCO Invest in Intaj Capital II
• New private equity fund in Kuwait
• HSBC Private Equity Middle East attracts $118 million

The Kuwaiti business landscape has dramatically changed over the past few months affected by the world’s liquidity crisis, deteriorating oil prices, postponed infrastructure projects, and the lack of an immediate and clear domestic stimulus package addressing many of the country’s ailing  but vital economic sectors  including financial services and building materials.

As a result, many Kuwaiti companies got severely caught in the current crisis, particularly those with leverage and non-core assets. The problem says Yann Pavie, founder and Chief Executive Officer of GulfMerger, Kuwait’s leading mergers and acquisition advisory firm, is that “many local companies across most business sectors got into multitudes of investments and either progressively lost focus of their core business activities or never built a strong core business activity to begin with.” Faced with a continued slowdown, many of these companies will continue to post significant losses in 2009 and face difficult times. More importantly, many of these companies will need to reassess how to clean up their balance sheets by shedding non-core assets, reducing leverage, and strengthening their core business activities through mergers, acquisitions and disposals, and most likely will require a new capital injection. “We expect to see local companies not only in the investment sector but also in other sectors as well shedding non-core assets and coming together through mergers or share swaps to create stronger entities that are likely to be more attractive for capital raising” says Pavie.  

While capital raising through the stock market or private placements is currently a difficult option, new capital is still available contrary to perception says Pavie, “GulfMerger is in touch with a large number of regional private equity firms as well as global and regional, businesses – driven by the strategic imperative to establish a presence in the region – willing to deploy capital in local Kuwaiti companies with strong core businesses.” 

“However companies needing this capital injection need first to show their willingness to refocus or strengthen their core businesses through restructuring or mergers/stock swaps. It is these companies that are more likely to successfully attract new capital and emerge stronger, particularly given the benefits of having a strategic partner capable of adding value,” says Pavie.

GulfMerger has successfully advised local companies on restructurings and on selling strategic equity interests in companies to global companies or private equity funds. In this respect, GulfMerger advised on the sale of a controlling equity stake in Hilal Cement to Italcementi, the world’s fifth largest cement group. GulfMerger also successfully advised on the sale of a controlling equity interest in Jassim Transport & Stevedoring Company to Global Investment House’s Private Equity Group. Last but not least, GulfMerger advised Al Rai Media Group on its recent restructuring which helped the company post its first-ever profits in 2008 and set itself for a course of continued profitability in 2009 and beyond.  

While some shareholders and boards of directors are likely to pro-actively rethink how to strengthen their companies, commercial banks which have extended substantial loans to local companies are also likely to become a key driving force in pushing companies to restructure, shed unnecessary non-core assets and strengthen core business activities.  “Clearly, any such restructurings involving asset sales, mergers, stock-based acquisitions and capital raising from strategic investors are complex to execute and require expert advice from financial advisory firms with clear successful track records. At the very least, any such shareholders and lenders should get a second opinion before undertaking such complex restructurings” says Pavie.

Established in March 2007, GulfMerger is one of Kuwait’s newest financial advisory firms and is the only one with a focus on M&A in Kuwait, particularly small and middle-sized companies. “Let the likes to Goldman Sachs advise on large M&A deals and restructurings, we are focused on advising small to middle-sized companies” says Pavie.