From Dubai: Investcorp Feeling Volatility Impact

DUBAI (Reuters) – Bahrain and London-listed Investcorp’s (INVBq.L) president and chief operating officer Gary Long said on Monday the investment firm’s portfolio companies were under stress, getting leverage for deals was difficult and investors were nervous.

“Certainly alternative investment firms like Investcorp are being negatively impacted” by the financial turmoil, Long said, speaking at the Super Return private equity conference in Dubai, noting this was particularly being felt in its business in the West.

“For example, dealflow is down, leverage is a lot more difficult… and returns are under pressure,” said Long. “That’s true for private equity, that’s true for hedge funds, and that’s true for real estate investing.”

Long said that the some of the companies Investcorp has in its private equity portfolio are under pressure as they try to maintain their top line revenues and cashflows.

“So it definitely feels like a recession to us and has felt like a recession for many months now,” Long said.

Investcorp’s private equity team is based in London and New York and focused on Western Europe and the North America. The company’s current portfolio comprises 23 companies, according to its website.

The pressure is being felt in Investcorp’s private equity businesses in Europe and the U.S., he said on the sidelines of the conference. “The U.S. in general, we’re seeing slowdowns in their revenue and we’re really spending a lot of time with our portfolio companies,” he said.

But he said there could be opportunities for potential add-on acquisitions for some of these companies, as valuations of targets have fallen.

He said it was “really hard to call” how long the downturn would last. “It’s about confidence. Once confidence returns to the banking industry I’m hopeful of a return to… liquidity,” he said on the sidelines of the conference.

GULF OPPORTUNITIES

But he said while the Western private equity environment is very difficult, in the Gulf, it “continues to grow and mature and prosper.”

“It is the golden age for private equity in the Gulf,” he said.

Long said Investcorp decided to establish a private equity business in the Gulf about two years ago to add to its private equity business in Europe and the U.S. He said the firm had looked at about 200 investment opportunities in the Gulf.

Investcorp has raised a $1.1 billion Gulf Opportunity fund to spend in the region.

“I’m very bullish about opportunities for private equity in the Gulf,” he said.

He noted that investing in the Gulf had a lot of differences to the West, particularly in the way deals are originated and financed.

“Financing markets are… very different,” he said. “Most banks in the region don’t do classical LBO (leveraged buyout) financing… this is a problem not just for private equity but for all businesses in this part of the world.”

He said in general, lending was “asset based as opposed to cashflow based”.

He said given the scarcity of financing, Investcorp had decided to evaluate a new business associated with mezzanine financing in the Gulf region.

“It’s a brand new initiative and today is the first time we’ve talked about it publicly he said. “Our plan is to make mezzanine loans to support the private equity-sponsored deals in the region. We will be raising a fund to facilitate this new business.”

On the sidelines of the conference, he said the fund was in “evaluation phase” and couldn’t give an indication of how big it would be.

Long also predicted there would be a consolidation in private equity firms in the Gulf, and a few private equity firms would dominate.

Long said that overall, private equity will survive the turmoil and said it would keep its place as a very important asset class going forward.

(Reporting by Megan Davies; Editing by Mike Nesbit)