TBY talks to Omar Syed, Managing Director of The Abraaj Group, on what sectors are ripe for investment.

What is the importance of Turkey for Abraaj's growth?

We've been exploring Turkey since 2005. It was a very important market that we believe has significant underlying growth factors in place. It has a very young population, with an average age of 29 years, which means that you can genuinely reap the dividends that come from this demographic profile. Coupled with high rates of urbanization (the country is as urbanized as Europe, with 85% of the population living in urban areas), you have a compelling growth story. We're also intrigued by the growing middle class, and it's projected that another 7.5 million households will enter the middle class by 2020, and that fits with the trends that we look for globally at Abraaj. We did our first deal in Turkey in 2007, the Acıbadem Healthcare Group transaction. We exited that deal in 2012, and that has continued to build our confidence in the market. We continue to see long-term growth with strong underlying factors that underpin this growth for Turkey, and we've accordingly considered Turkey to be our regional hub, one of six Abraaj hubs in the world, from which we manage our investments in Turkey and Central Asia. We continue to plan to increase our investment activity in Turkey. To date we've invested close to $844 million, and we've returned in excess of $800 million back to our investors through five exits. We've exited all of our first cycle of investments back to the investors, so what we see now are our current investments, for example Yörsan, which is a leading dairy company in Turkey. The fact that we've returned all our investors' money is a very important statistic. We've returned more capital than all of the locally active private equity companies in Turkey combined, and so we're very proud of that statistic. We've proven not only that we could build a local entity on the ground, but that we've been highly successful with it. We started off small, whereas we now have seven investment specialists based in Istanbul, and we expect that number to increase further next year. We also have two investment specialists for Kazakhstan who manage our Central Asian activities based out of Almaty.

What kinds of acquisitions is Abraaj looking for in the Turkish market?

We're looking across all sectors. While we are essentially sector agnostic, there are defensive, high growth sectors we do like, such as healthcare, education, logistics and transport, retail, and the consumer services segment. Those are the sectors where we've seen particular potential and where we have a globally successful track record. Take the retail market for example: store-based retail is growing in the double digits, and we also see online retail as being a huge market, because it's growing seven times as quickly as store-based retail. So when we look at factors and trends, we're very focused on how we build our target portfolio. When we're building our target portfolio, we focus on key sectors where we see significant growth and then drill further down into those sectors to identify the strongest opportunities. In consumer services we find food and beverages to be an interesting growth area, especially considering the phenomena of the rising middle class, increasing urbanization, and dual-income families. Once again we like the midcap segment; an enterprise value of less than $500 million is what our focus will be, because we believe that's where the growth engine is for Turkey. That's where you have the largest number of companies, and it's also where you see a lot of high-growth businesses that require smart capital. Such businesses are also looking to bring on partners that can not only bring funding to the table but also help institutionalize a corporate framework and bring value-added knowledge to the table. When we look at partner companies, a key principle is alignment. We don't see this as a transaction, we see it clearly as a partnership, so we take our time up front understanding the partners that we're going to go into a long-term relationship with, and understand if we have the same alignment of vision, strategy, and shared approach toward long-term and sustainable growth. The second thing we look for is the underlying robustness and stability of that platform. For us it's very important that we're investing in defensive companies that have the ability to grow and expand. Thirdly, and probably the most important element for us, is the value that we bring to the table. When we look into a deal right up front as part of our due diligence process, the key aspect is to see the value that we're bringing together and how we can become a genuine contributor to the success of this business. This is manifested in various ways: it can be helping to grow and regionalize the business within Turkey or outside of Turkey leveraging our experience and our know-how. It's about bringing a corporate framework and institutionalization to help their business grow. If I were to give Yörsan, as an example, it is the leading dairy business in Turkey. It also happens to be a family-run business and we were in contact with the family for 18 months, so that will give you an idea of the significant amount of effort, resources, and time that goes into building a genuine partnership. As a family-owned and run business it's very important for them to feel comfortable with us as a potential partner.

What kinds of opportunities do you see in the real estate sector at the moment?

We have one significant real estate investment in Turkey, which is Republika. We partnered with BGI, a real estate fund based in Turkey. We have a lot of respect for the organization and the team. We were exploring ways that we could work with them, and the most relevant transaction that came up was Republika. Republika is an interesting project that focuses on driving the student housing segment in Turkey. It's a massive opportunity; because when you spend time in the country you realize traffic and housing are significant issues. Even if you live in Istanbul you find parents prefer to place their kids in the Republika housing community so that they're closer to their university and don't have to spend so much time traveling in traffic. So that's our first real estate project in Turkey, and we think there's a lot of potential in student housing. We also think there are good opportunities in commercial real estate in Turkey. There's a shortage of good quality commercial real estate in Turkey. As the rate of urbanization increases and as Turkey continues to consolidate its position as a regional hub, we anticipate that the demand for commercial real estate will continue to grow.

“While we are essentially sector agnostic, there are defensive, high growth sectors we do like."

© The Business Year - December 2014