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DIFC’S DECADE
MERGING MOXIE
FLYING A NEW FLAG
10 years and counting
THE GULF CONSOLIDATES FOR GROWTH
ENCOURAGING EMPLOYEE MOBILITY
THE REAL THING DAVE ANDERSON REFRESHES THE WORLD OF MERGERS & ACQUISITIONS
Vol. 1 ISSUE 3
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Enterprises across the region are once more pursuing aggressive M&A strategies. Key localities across the world are lifting from the mire of a recession addled environment and these effects are being felt tremendously in the Gulf via renewed interest in mergers & acquisitions. While recently attending the ICAEW’s fourth annual Middle East Accounting and Finance Excellence Awards I encountered a room full of the industry’s finest. CFO of the Year Sana Khater, representing Waha Capital, walked away with the top prize for her designation. Being recognised by the ICAEW as Chief Financial Officer of a firm which has advanced tremendously on its vast acquisitions strategy spoke volumes about how imperative M&A has become for the role’s purview. According to the research of Dubai Economic Council’s Senior Economist Dr. Ali Tawfil Al Sadik, though far shy of pre-crisis levels, M&A value has risen in recent years and is showing promising signs of stability. Dr. Al Sadik’s figures rely largely on the global marketplace rebounding and the subsequent increase in international spending. As such, foreign investment has proven to be a major driver. A landmark merger reached between Saudi Arabia’s regional beverage mainstay The Aujan Group and Coca-Cola in 2012 acted as a precursor to the M&A activity seen at present. Cover subject Greg Anderson spoke exclusively with CFO Magazine about his role in a deal that became the biggest investment in the Middle East’s consumer packaged goods sector at a reported $980 million. The diminished spending reticence of a once addled marketplace is effecting the spending habits of many industries. While significantly impaired during the crisis the real estate market has now begun to emerge from the rubble with massive rises in expenditure. A catalyst of the downturn was the vast fragmentation of the realty sector. M&A has found success in alleviating the sector’s splintering in the UAE with the merger of Abu Dhabi’s two largest private developers Aldar and Sorouh. Aldar CFO Greg Fewer shares this month how instrumental the Chief Financial Officer is in the critical flow of information central to mergers of such grand scale. Excitement abounds across a multitude of industries in a manner which is driving more to embrace a philosophy of consolidation. Awards are being doled out to celebrate this reality. Foreign investment is encouraging an influx of cross border M&A. And CFOs are finding their importance heighten with every deal.
Steven Pradia Assistant Editor
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tHE CFO MIDDLE EAST
Advisory Panel The CFO Middle East’s Advisory Panel presents a dynamic group of experts and leaders in various aspects of the world of finance. As industry captains arriving from world-leading organisations and specialising in financial strategies, accounting and management these key personalities will play a vital role in ensuring the delivery of relevant and accurate analyses of the latest trends and issues in the business community.
Ahmad Darwish Ahmad Darwish is a Board Member and Secretary General of the UAE’s Accountants and Auditors Association (AAA), an organisation tasked with the promotion and development of the accounting profession in the country. He is also the Senior Manager for Financial Accounting at DP World UAE and oversees the management accounting, treasury and asset management divisions of the company. With his extensive financial expertise Darwish is also the first Emirati to chair the UAE Members Advisory Committee of the ACCA.
Hanady Khalife Hanady Khalife is the Director of operations, Middle East and Africa, of the Institute of Management Accountants (IMA). She is responsible for training providers, business partners, universities, governmental entities, amongst others. Khalife is also an expert consultant specialising in assisting clients develop and implement strategic business plans and build partnerships with key industry stakeholders.
Michael Armstrong Michael Armstrong, FCA is the Regional Director for the Middle East, Africa
and South Asia (MEASA) of ICAEW. He is responsible for the ICAEW’s work across the MEASA region, collaborating with key stakeholders, engaging with businesses across the region, supporting ICAEW members and working with both public and private sectors on raising awareness of the relevance of chartered accountancy catalysing economic growth. Armstrong has extensive experience advising financial institutions and energy and natural resources companies in addition to having held several leadership and advisory positions in business and government.
David Thomasson David Thomasson is the founder and Managing Director of Phoenix Financial Training. David is a fellow of CIMA and worked in the accountancy industry for many years before moving into training in the 1990s. PHOENIX offers courses leading to Professional Finance Qualifications in ACCA, CIMA and ICAEW in Dubai and India. Offering a range of bespoke financial courses in Financial Awareness Building and Corporate Treasury Phoenix’s student body ranges from independent students to practitioners of private companies and sovereign wealth funds.
Lindsay Degouve de Nuncques Lindsay Degouve de Nuncques is the UAE Head of the Association of Charted Certified Accountants (ACCA).
Her role entails spearheading discussions with regulators, business leaders and important stakeholders to strengthen the ACCA’s network and profile in the region. Degouve de Nuncques has spent more than eight years with ACCA in various senior roles.
Geetu Ajuha Geetu Ahuja is the Head of GCC for the Chartered Institute of Management Accountants (CIMA). Responsible for developing the growth of operations and positioning the global brand of CIMA across the GCC region, Ajuha establishes strategic partnerships with global and regional entities. She is also responsible for overseeing the launch of various region specific CIMA nationalisation programmes in the GCC.
Paul Gyles Paul Gyles is the Regional CFO and Board member for all ISG Group companies – an international construction services company delivering fit out, construction, engineering services and a range of specialist solutions. He is responsible for the finance, HR, IT, admin and legal functions for ISG’s Middle Eastern outfit. A key aspect of the role is project funding and raising external financing by working with both Arab and international banks. Gyles is also the Chairman of the Steering Committee of the MECA CFO Alliance, the largest CFO networking group in the Middle East.
CONTENTS 10
Infographic How CFOs view Mergers & Acquisitions.
12
22
Davis Thomasson The author attends the 10th anniversary of the DIFC and offers his expert opinion on what to expect in the next decade.
26
Accordion A unique New York consultancy delivers best practice to the GCC.
14
Dubai Economic Council Dr. Ali Tawfik Al Sadik analyses global commerce.
WCOA CIMA and AICPA launch a flagship report in Rome.
32
Proclad A Q&A with Oil and Gas cladding Financial Controller Mark Downie.
“Through acquisitions we have been able to better control our projects’ critical components.”
18
ISG Construction CFO Paul Gyles sizes up the Gulf.
CONTENTS 34 Aldar Abu Dhabi’s
largest private real estate developer is primed for continued growth.
Business Banking 44 An overview of where a mass of increased lending is heading in the UAE.
47
Raju Menon ICAI Dubai’s chairman discusses what’s ahead for the Institute.
48 IMA How to cut
a deal when an M&A looks D.O.A.
38
AUJAN Group CFO Dave Anderson lays bare the many moving parts of the Saudi conglomerate.
“As a CFO I think it is very important that you are tuned into how the market you are working in is evolving.”
34
54
Zafco The global tyre distributor heads to Southeast Asia for its latest round of M&A.
54
63
ERP’s Focus 58
Women in Leadership Economic Forum
61
Linda Luu Lockton’s Vice President of Finance discusses risk management.
65
Chief Investing with Al Masah
68
Opinion Geetu Ahuja of CIMA expounds on performance related pay.
PROJECTIONS
Seal the deal:
Mergers & Acquisitions
CFO Infographic
Sources: Bridging the Gap: M&A by Deloitte; EY’s Capital Confidence Barometer – Smaller strategic deals lead market recovery; Going Global – strategy and execution in cross-border M&A by Baker & McKenzie
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MERGERS & ACQUISITIONS in the Middle East Overall outlook
57%
79%
expect to pursue acquisitions in the next 12 months
34%
expect their deal pipeline to increase over the next 12 months
plan to make further acquisitions within the next two years
Top trends Major deal: acquisition of the Qatar-based Barwa Bank by Qatari Diar Real Estate Investment Company for $0.7bn
The top 5 transactions made up 85.3% of the total M&A value in the region during Q1 2014
Middle East and North Africa M&A deal values increased from $31.6 billion in 2011 to $44.8 billion in 2012
The UAE and Qatar lead regional deal activity
This marks a 42 per cent jump
Sectors with highest intentions to pursue acquisitions
Construction
Consumer products and retail
Diversified industrial products
Telecommunications
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PROJECTIONS
CFO Infographic
Cross-border MERGERS & ACQUISITIONS Understanding cross-border M&A
86%
34%
consider their last cross-border M&A deal to be successful
$263.1BN
plan to undertake another cross-border deal in the next 2 years
value of crossborder deals for Q1 2014
Key drivers
34%
Access to customers
25%
21%
Intellectual property
12%
Industrial assets
8%
Natural resources
Human capital
Why choose M&A over joint ventures?
33%
Risk of conflict around decision making and control
15%
19%
Desire for full ownership of assets and profits
13%
Lack of suitable joint venture partners
Unsuitable legal environment for enforcing joint ventures
What are the CFOs saying? Core M&A objectives
64%
Product/service differentiation
42%
Enter new geographic markets
42%
32%
Expand customer base in existing geographic markets
Pursue cost synergies or scale efficiencies
What are the primary M&A funding sources?
53%
Available cash
37%
6%
Debt
New equity issuance
Greatest concerns
43% www.thecfome.com
Failure to effectively integrate
16%
Changing regulatory and legislative environment
14%
Inaccurate target valuation
12%
Economic uncertainty
11
The Dubai Economic Council weighs in on M&A Growth DEC Senior Economist Ali Tawfik Al Sadik offers his expertise on how Mergers & Acquisitions are shaping up in the UAE due to connectivity between global trends, FDI and the partnerships they encourage.
I am a macro economist and believe offering a global view helps to better understand the M&A market. Global FDI inflows peaked in 2007 reaching more than 2 trillion dollars, of which 22% represented cross border M&As whilst the balance represented greenfield projects. In terms of numbers, there were 12,199 cross border transactions and 12,974 greenfield projects in 2007. The 2007 – 2008 global financial and economic crises negatively impacted the global and regional FDI flows tremendously. In fact, FDI inflows dipped to 1.3 trillion dollars in 2009, and by 2013 they recovered
12
partially to $1.4 trillion. Global M&A transactions reached 8,634, valued at $780 billion and the number of greenfield projects amounted to 14,215, valued at more than $672 billion in 2013. Greenfield projects in the manufacturing sector accounted for 38.5% and services for 57.2% and the balance went to the primary sector in 2013. FDI inflows, especially the Greenfield projects, are important to the receiving country since they create value added, jobs, and increased exports, also adding to the stock of wealth, deepen globalisation, create
STAT FACTS
$780b Value of global M&A in 2013
competition and facilitate technology transfer. In 2013, value added by foreign affiliates amounted to $7.5 trillion, equivalent to a little more than 10% of world gross domestic product (GDP), employed more than 70 million persons, and exported more than US $7.7 trillion, equivalent to a little more than 33% of world exports. In general, FDI has direct and indirect effects on an economy. The direct effect is reflected in higher growth rates which are generated by higher capital formation. The indirect effect emanates from the efficiency gains that are associated with technology
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transfer and competition that FDI generates. Economic determinants often divide FDI into two broad categories:
UNITED ARAB EMIRATES (million of dollars) united arab emirates (outflows)
united arab emirates (inflows)
18,000.0
15,820.3
16,000.0
For the UAE, FDI inflows peaked at US $14.2 billion in 2007, and plunged to US $4 billion in 2009. However, the FDI inflows recovered to almost US $10.5 billion in 2013. The value of cross border M&As in the UAE peaked at US $1.3 billion in 2008 and dipped to only US $299 million in 2009 and recovered partially in 2010, after which it declined to US $286 million in 2013. The value of UAE greenfield projects peaked at US $36.2 billion in 2008, followed by a declining path and reached US $6.8 billion in 2013. In the United States of America, the Committee on Foreign Investment in the US (CFIUS), is a multiagency government body chaired by the Secretary of the Treasury. The Committee reviews proposed M&As and greenfield projects and presents recommendations to the President who has authority to accept or reject the proposed transaction. This is a standard the UAE is drawing nearer to exemplifying as well.
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14,000.0 12,000.0
10,488.0
10,003.5
10,000.0 8,000.0 6,000.0
3,750.3
2,905.2
4,000.0 1,183.8
2,000.0
2013
2011
2012
2010
2009
2007
2008
2005
2006
2003
2004
2001
2002
1999
2000
1997
1998
1995
1996
1993
1994
1991
1992
-2,000.0
1990
• Market seeking FDI, which is tariff jumping investment driven by larger markets or regional trading areas, • Efficiency seeking FDI, which can take the form of export platform investment in final goods and investment in internationally integrated industries
UNITED ARAB EMIRATES: Value of greenfield fdi projects (million of dollars)
40,000 36,218
35,000 30,000 25,000 20,000 15,327
15,000 10,000
8,951
13,067
12,372
10,388
12,870
12,053
11,623
6,821
5,000
3,613
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
at the global level (billion us $)
FDI INFLOWS
CROSS-BORDER M&A
M&A % OF FDI
1700 1493
1452 1330
780 556 332
52.2
2005 - 2007 pre crisis average
32.7
2011
349
25.0
2012
24.0
2013
13
GLOBAL GATHERING
World Congress of Accountants
CGMA report launched The trend of an increasingly agile open workforce is affecting the global activities of industries worldwide. A recently released flagship report is inducing accountants to respond to the implications of this pressing development.
The World Congress of Accountants (WCOA) met in Rome, Italy 10-13 November for the 19th edition of one of the profession’s most heralded events. WCOA was well attended by accountants from every corner of the world under a theme which sought to unite the accomplishments of the past with what finance professionals deem essential in the years ahead. “2020 Vision: Learning From The Past, Building the Future” provided an excellent platform for WCOA’s imperial
14
sponsors the Charted Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) to launch a flagship report on the open workforce under the banner of their joint designation Chartered Global Management Accountant (CGMA). The CGMA has been established as a result of two of the world’s most prestigious accounting bodies, AICPA and CIMA, forming a jointventure in order to elevate the profession of management
2020 Vision: Learning From The Past, Building the Future” provided an excellent platform for WCOA’s imperial sponsors CIMA and the AICPA to launch a flagship report.
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GLOBAL GATHERING
World Congress of Accountants
“The driver for the work was to try and think about the future, to think about external trends and then relate that to the lives of the finance profession.”
accounting. The designation recognises the most talented and committed management accountants with the discipline and skill to drive strong business performance. CGMA’s open workforce report is indicative of the progress the organisation is committed to making. “With the release of this report we wanted to stick to the importance of WCOA’s theme and encourage people to think in a new way about the accountant. We started looking around at key trends. We
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15
GLOBAL GATHERING
World Congress of Accountants
“It’s all about looking into the future. The accountancy profession has traditionally looked inward. This report is a sort of provocation to the industry.”
16
were really looking at the way organisations are changing,” said Gillian Lees, Head of Research and Development, CIMA. The CGMA’s report sought to compel the global crowd of accountants present at WCOA to think of constantly evolving work force trends which are witnessing increasingly mobile work environments, though with special attention paid to the accountancy profession. Said Lees: “The driver for the work was to try and think about the future, to think about external trends and then relate that to the lives of the finance profession. We want these individuals to think outwards and to look at the way the world is changing. We’ve taken this general issue and related it to what finance professionals are trying to achieve within their respective remits.” The study found that organisations are relying more significantly on consultants, contractors and researchers in a bid to actualise better dexterity when approaching the widening global marketplace. The findings of the report are based on a Longitudinal Research survey of 1,100 senior executives as commissioned by CGMA. WCOA hosted a number of panel discussions, networking areas and company stands at this year’s Congress. Central to the event’s dialogue was the plenary session, “Businesses thriving in disruptive times”, which brought together CFOs of Ernst & Young, British Telecom, Yahoo! and Royal Dutch Shell. CGMA’s open work force report was launched
STAT FACTS
3,956 Global delegates present at WCOA
directly after this spirited discussion took place. “The following day we ran a presentation where we went into detail about the importance of our findings, going through the key highlights and as a result engaged in great conversation with those in attendance,” detailed Lees. Offering WCOA attendees the opportunity to think outside of the box related directly to the Congress’ intent of looking ahead to 2020. Challenges related to risk and intellectual property were discussed with the advancement of a flourishing open workforce in mind. The report aimed to additionally stem concerns that a mobile workforce simply amounts to a company’s employees working from home. “This trend is more about collaborating well and being in the right place at the right time and not so much about everybody being absent from the office. We’re also seeing this trend occur in the way that office buildings are being restructured in order to encourage better group effort,” said Lees. “Ultimately, it’s all about looking into the future. The accountancy profession has traditionally looked inward. This report is a sort of provocation to the industry. We want accountants to really understand the business and their respective business models whilst also in the context of the external environment. ” For more information about the report, visit www.cgma. org/ready.
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1994 - 2014
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BUILDING BE T TER BUSINESSES - GLOBALLY
FEATURE
ISG
Constructing From the Inside Out As Middle East CFO of construction services firm ISG, Paul Gyles’ role has proven critical in building the keynote development team.
International construction services company ISG has grown tremendously since its founding. The UK-based firm found a home in the UAE in 2007, initially setting up as a branch office in the country before establishing a full LLC entity. Listed on the London Stock Exchange and with 3,000 employees worldwide and almost GBP 1.5 Billion in turnover, ISG has effectively brought its winning approach to the region and was awarded Middle East Interior Contractor of the year in 2011 and 2013. Though equipped to approach the construction services
18
industry from a number of angles, ISG’s Middle Eastern outpost focuses specifically on interior fit out with special attention paid to the office and hospitality industries. ISG’s intent to explore the latter has led to the firm’s largest project in the region at the Kempinski Hotel, Mall of the Emirates. With a large collective of projects pouring in through the UAE due to servicing a number of international and local clients, including several Mubadala-affiliated projects in Abu Dhabi, managing cash flow has been imperative. Central to the essential nature of the
“Now that we have developed a strong UAE business, we are planning to expand into other GCC markets.”
many moving wheels of the construction industry and the capital which drives it all is the Chief Financial Officer. “The area which requires the majority of my time is without doubt Cash Management, and I’m sure this would be the same for the vast majority of construction CFOs. Cash-flow is critical to delivering a successful project, after all you can’t run a business on fresh air,” said Paul Gyles, ISG CFO, Middle East. “Cash Management includes ensuring project cash-flows are carefully monitored, and establishing banking facilities to ensure bonding lines and letter
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FEATURE
ISG
“CFO time will be required to ensure we have the right legal structure, right local partners, and the right team on the ground.”
Paul Gyles, ISG
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of credit facilities are in place for the projects.” Whilst the bond market is crucial to supporting growth in the construction industry, the banking industry has proven a welcome boon. Banks in the Middle East have expressed more of a willingness to extend credit as compared to their international counterparts, a trend which has attracted ISG to expand in the region. The firm has focused the majority of its regional energy into the UAE, whilst continuing onward to Qatar with a keen interest to furthermore delve into Saudi Arabia.
19
FEATURE
ISG
“The key to being successful in a CFO role is to have an excellent working relationship with the Managing Director, becoming an MD/FD tag team.”
20
Said Gyles: “Now that we have developed a strong UAE business, we are planning to expand the business into other GCC markets, which will require CFO time and effort. We already have a small operation in Qatar but need to grow this into a much bigger operation. We will also be considering market entry into the Kingdom of Saudi Arabia in the near future, and this market has the potential to be a significant market for an ISG offering. CFO time will be required to ensure we have the right legal structure, right local partners, and the right team on the ground.” ISG’s growth in the region has been catalysed by an organic ethos of well-placed projects and patience which has allowed the company to flourish. A few aspects related to the ISG team’s makeup have been key to this growth. Gyles lauds the abilities of his finance team which bring strong operational financial management to the table so that he’s able to exist as an outward-facing CFO without growing too consumed with every financial bit of the role. A second pairing paramount to the company’s growth has been that which exists between FD and MD. Managing Director Alan McCready and Gyles work in a manner which complements one another whilst offering the business an enviable balance. “The key to being successful in a CFO role is to have an excellent working relationship with the Managing Director, becoming an MD/FD tag team, excellent business partnering
STAT FACTS
$2b ISG’s global turnover
300k ISG emplyees worldwide
internally and externally, and last but definitely not least is building a top quality finance team. To evolve the CFO role, all these aspects need to be in place,” said Gyles. You need to be the right hand man and someone that the rest of the business can turn to. They go straight to the CFO knowing that you’re an extension of the CEO. The MD would never make a commitment or financial decision without my involvement. Where we partner well is that I will focus on the operations, which then keeps him free to focus on business development and winning work.” Based on the backing of a well-trained staff, an excellent CFO and CEO relationship, and a very healthy forward order book, ISG is primed to grow furthermore in the years ahead. With an eye on new GCC markets and the capability to provide the same level of service seen in its original Western markets, Gyles nonetheless assures that the firm will not abandon its penchant for approaching the market carefully. Said Gyles: “The past few years we have been predominately focused on organic growth, opting for slow but safe advancement and building a platform of success. Going forward my role will be helping to drive the geographical expansion of the business in the region, but at the same time keeping any eye out for potential acquisition targets to help accelerate the growth and enhance our value proposition.”
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OPINION
David Thomasson
Revolutionary Change David Thomasson, Managing Director of Phoenix Financial Training, has seen the finance industry transform markedly during his decade long engagement with the Middle East. Here he shares his thoughts on what the Dubai International Finance Centre’s tenth anniversary means to him with regard to the direction of the country’s finance industry.
There’s a saying isn’t there – ‘the more things change the more they stay the same’. I was reminded of this while watching the hugely impressive ceremony for the DIFC 10th anniversary event at the Gate Building earlier this month. In the UAE the diversity and complexity which makes this a magic place for me often makes change very difficult. As we try to drive the UAE forward as the key financial centre in the region and a pivotal hub between Europe and the Far East we are as always, subject to all sorts of specifically regional demands and drivers. For example the entire ceremony was conducted in Arabic, translation devices were placed on each seat but were not universally used. One might question whether this is the right decision for a country trying to position itself as a financial hub when the commonly accepted language of finance is English. But it truly is more complicated than that. Aren’t we also trying to position ourselves as an Islamic financial centre
22
in the world? When you then add in the huge importance of preserving Arabic culture and language and remember that this is not simply symbolic, things get more complex. The erosion of Arabic language use (particularly amongst the younger generation) and the fundamental challenges this poses for the future identity of the nation and the region is something I hear often discussed amongst my Emirati friends. Given my nearly 50 years in the UK prior to moving to Dubai, I have seen the Welsh language deteriorate and relegated over the decades. Based on this experience it seems vital to me that the sense of cultural identity that comes with the use of language is given primacy. Whilst diversity is to be celebrated and embraced, as always in the UAE the tough part lies in the competing influences and pressures that come with a rapidly developing economy and an incredibly diverse population base – but let’s not forget that this is the fun part too! So if it is tough
to change and still maintain the integrity of the region’s populous, let’s focus on what has stayed the same and what needs to be changed in the field of finance. I have been coming to Dubai for ten years now and moved here in 2006 to establish Phoenix Financial Training in the DIFC. We were one of the first 250 businesses there and have grown through bad times and good. In some ways my personal development and that of our business has been a reflection of the ten-year DIFC journey. Some days I get depressed – not with the constant sunshine, 50 years of
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OPINION
David Thomasson STAT FACTS
800+ Number of ACCA students attending Phoenix Financial Training
David Thomasson, Managing Director, Phoenix Financial Training
Manchester rain cures you of that one – no, I get depressed by how much needs to be done and how little change it sometimes seems we have achieved. There is still a huge financial knowledge gap in businesses – not just amongst non-finance managers but within the finance and accountancy community itself. After all these years there is still far too much emphasis placed on years of experience or repeated tasks and processes and far too little on dynamic, challenging and professional finance skills. For a long time the asset base of the UAE has driven cashflows for the UAE Government, associated
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organisations and profitability for many private companies. UAE-based entrepreneurs have demonstrated incredible inventiveness, hard work and business acumen in building profitable businesses here. However in an ever more demanding world, where markets and individuals are better connected, where social media and networks provide marketing and communication channels unthinkable probably even five years ago and with Brent Crude dipping around $70 we are going to need to get so much better! If the UAE is going to genuinely play on the world
stage alongside established powerhouses such as the USA and new, powerful economies such as China, I feel a lot needs to change to assure long term success. So what would I like to see change? As a country and as individuals we need to understand that an accounting degree does not make one an accountant! This is not a criticism of university education – it is simply that except maybe with reference to some US degrees, undergraduate programmes are not intended to produce practicing accountants. That is why we have professional qualifications
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OPINION
David Thomasson
– these take you through the technical and vocational aspects of what being an accountant means. We need to move to a scenario where those classified as accountants are graduates and have a professional qualification – to be honest the degree can be in any discipline. I see no evidence that an individual with a degree is going to be any more competent than one without if they both have the same professional qualification. To me the degree is expendable – the qualification is most definitely not. Secondly we need far more importance to be placed on the professional qualifications during the recruitment process. If you are a CFO do you want to be surrounded by people of a similar age and experience as yourself or do you want to be surrounded by young, dynamic, well trained individuals who will come in and challenge the status quo and bring energy and new ideas into our businesses and processes? The first way is comfortable but we know that the second is the correct path, uncomfortable though this might be at times! Thirdly we need far more UAE nationals recognising professional accountancy as a vital and important career choice. At the end of the day the country belongs to the Emiratis, it is their asset wealth that underpins the economy and it is now time for a recognition that the skill base needs to be built to develop and secure this for future generations. It is wonderful that the UAE provides such a welcoming environment for expats such as myself where we can build
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careers, lives and businesses, but it is wrong for the UAE and its citizens to rely on people like myself forever – financial skills and understanding amongst the local population will secure this legacy for generations to come. So what is the good stuff that is happening? Sometimes it seems like things haven’t changed, but I guess this is just when I am having a bad day! The DIFC has grown immeasurably, the number of companies operating there and the standards of disclosure and governance has moved forward. Recruitment companies now do increasingly specify globally recognised accountancy qualifications as a pre-requisite. Maybe we will soon see an end to the days when an advert saying the requirement is for an accounting degree or a professional qualification (as if these are the same thing). Most importantly we have recently seen the launch of the UAECA qualification. Driven by the Accountants and Auditors Association (AAA) of the UAE at a federal level and using the underpinning of the ACCA syllabus and exam structure paves the way for the UAE financial professionals and institutions to play an integral part in the global accounting community. The qualification will in time become the byword for accountancy professionalism in the UAE and is a major step forward for the country and the profession here. Many individuals have worked hard to make this happen and the launch of this qualification recently is a major step for the UAE finance community.
“As a country and as individuals we need to understand that an accounting degree does not make one an accountant!”
We’ve also seen ever increasing numbers entering our Institute. To be fair many of these still come from traditional demographic sources of young Indian and Pakistani graduates but an ever increasing number are Emirati. In addition, here at Phoenix, we are getting more and more requests from government, and entities related, to put training programmes in place for their nationals to develop qualified finance professionals. The growth in such enquiries has been without precedent in the last six to nine months – we now get such enquiries on nearly a weekly basis, testament to a new realisation amongst national organisations of the need to significantly build financial capability amongst their Emirati employees. Accountancy is important and developed financial skills are a pre-requisite for successful businesses. I know people sometimes think we are a bit dull (they don’t really know how exciting we are!) but we are necessary. Businesses in the USA know this, organisations in the UK and Europe understand this, in the Far East it is a given. If the UAE is to genuinely become a world player we need to realise this too. I am sure it will happen, it’s been a bit slow but I can see lots of encouraging signs – I am now looking forward to the next ten years here and hope that at Phoenix we can train even more of these much needed young professionals. I imagine that old adage is due for an update as a result: “The more things change the more we see that things can’t stay the same!”
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Investment partnerships for long-term shareholder value creation
Outsourced Accounting Why Should We Outsource Our Accounting?
The Benefits of Outsourced Accounting
Cost effective
Reduction in employer payroll taxes
Expertise
No workers’ compensation insurance
Accuracy
No medical insurance or other benefits to pay
Consistent reconciliation
No retirement plans
Backup
No vacation or sick days to consider
Allows you to focus on core business
No placing classified ads
Fraud prevention
No screening interviews
Confidentiality
No HR issues
Accounting Services Financial reporting (Internal & External) General ledger accounting Auditing (Internal, External, & Statutory) Design and implementation of corporate accounting platforms Accounting software package implementation
Corporate Finance Advisory Corporate acquisitions & divestitures Mergers & acquisitions Management & leveraged buyouts Capital raising (debt & equity) General corporate finance advisory and planning
Grosvenor Business Tower, Office 1911, PO Box 502831 Tecom – New Media City, Dubai, United Arab Emirates Phone:+971 4 456 3401, Fax:+971 4 456 3468 Mob: +971 50 342 1613, E-mail: info@nm-invest.com manager@nm-invest.com, Website: www.nm-invest.com
MARKET OUTLOOK
Accordion
ACCORDION’S BEST PRACTICE Despite a lack of sufficient manpower and time, firms across the Middle East are more persistently attempting to bolster their finance function to mirror the global standard. A unique New York-headquartered financial services consultancy is showing them how.
The Gap Companies within the GCC are becoming increasingly ambitious in their desire to approach new markets and explore untapped opportunities. Local GCC companies are extremely attractive investments for institutional investors within the Middle East and North African region as well as from abroad. Furthermore, companies within the GCC are evaluating their own strategic objectives to uncover new growth and expansion opportunities. To support both of these endeavours, the role of the corporate CFO is shifting. CFOs that were once considered
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simply “numbers gurus” are now being called upon to act as stewards of strategic change within their companies. The increased opportunities for growth expansion within the company and higher appetite for investment by institutional investors means that the work of the CFOs and the finance organisation is becoming multidimensional and more complex than ever before. Consequently, there are two dislocations within the finance organisations in companies which the CFO must manage. Firstly, institutional investors and their portfolio companies need financial experts to help
GCC companies looking to expand, may need help looking at acquisition opportunities and streamlining their processes.
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MARKET OUTLOOK
Accordion
oversee targeted finance-related projects. Second, growth companies that are eager to grow must create best-in-class finance organisations and evaluate expansion alternatives whilst realising that the organisation is in a situation where extra support and expertise is necessary.
Enter Accordion These two gaps within various companies’ finance teams, in the US and in Dubai, has proved to be a perfect niche for Accordion. “The need within the market is two-fold; the first is that there are a lot of PE firms, sovereign wealth funds, family firms and
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corporate offices looking at new opportunities and they want to ensure the financial and operational aspects of their investments are strong and well organised,” said Amanda Robinson, Vice President of Accordion. “Alternatively, for GCC companies looking to expand, they may need help looking at acquisition opportunities, streamlining their processes, and possibly assistance on a specifically unique project. They may have the expertise to analyse and streamline the finance organisation, but they are also involved in running their company on a daily basis.” Accordion was founded in New York City in 2009 with the objective of providing highcaliber “financial athletes” on a project-basis to companies in need of technical modeling, transaction experience, and corporate finance acumen. The firm fills a service void that has long been left vacant by traditional investment banks, consulting firms, and accounting firms and operates at an efficient intersection of cost and highly specialised services. Accordion’s finance professionals hail from notable investment banking institutions, private equity funds, and from industries delivering high-touch projectbased experience without the prohibitive cost of larger firms. Accordion’s team meets the need for a strategic, financially focused consulting firm to work alongside clients and enhance enterprise value. The qualifications of the Accordion bench mean that their consultants have the realworld execution experience to bring best practices to the
The qualifications of the Accordion bench mean that their consultants have the real-world execution experience to bring best practices to the processes and workstreams within companies.
processes and work-streams within companies. Accordion focuses on three main areas to support all aspects of the CFO’s organisation. Strategic Financial Reporting & Analysis includes tools and engagements to help companies gain better visibility into financial and operational data and streamline processes to make more informed strategic decisions. Transaction Execution Support comprises activities to support internal teams with professionals who augment existing staff and help execute corporate development and strategy initiatives. Within the Finance Leadership product offering, Accordion can help to provide an interim senior level resource to a finance organisation to provide immediate leadership in a high growth and change environment. “As firms start looking at global investments,” said Accordion CEO Nick Leopard, “Accordion is a great extension of that as we’re able to tap in and manage the variability of the deal flow globally. If we need someone with deep principal investment background and a knowledge of consumer products for Eastern Europe, we can help parachute that deal in.” For the past five years, Accordion has offered its services to a range of companies in the US and abroad. The firm launched in Dubai in 2012, bringing experienced professionals from the US and around the MENA region to bridge shortages in team bandwidth and expertise for companies in the GCC. Concerns related to luring foreign expertise into the Middle East for full-time appointments may increase the complications
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MARKET OUTLOOK
Accordion
for companies that are lacking the manpower or specific expertise needed to address certain financial processes. However, Accordion provides a solution to this problem with consultants in Dubai and New York who can be tapped to advise or execute projects. “We’ve had a guy in Abu Dhabi for the last three months helping a portfolio company through a finance transformation process. This particular professional was out of our New York office and had the specific expertise necessary. He was more than willing to come out for a few months. Individuals like him may have some reservations relocating to the region full time, yet are more than willing to step in a short-term basis,” said Leopard.
Filling the Gap A company’s finance function, with the CFO as the captain, must manage the expectations of external institutional investors such as Private Equity Firms, Sovereign Wealth Funds, Family Offices, and other investment funds both in the Middle East and abroad. The finance organisation must liaise upward to institutional investors, private equity firms, sovereign wealth funds, and other investors who will require robust reporting, cost analytics, a streamlined finance function, and actionable strategy plans that are supported by robust financial analysis. Once an institutional investor has capitalised a company, the CFOs of the company must work quickly to meet the demands of the company’s new institutional owners above and beyond tackling the day-
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to-day finance operations of the company and navigating possible organisational changes. All of these activities must be performed flawlessly often under extreme pressure. The CFO and finance team may need additional resources in terms of pure man-power as well as technical expertise to help guide them to meet these new requirements. Although institutional investors may be able to work with the finance organisation within the portfolio company to help direct and set expectations for the finance team, these investors are often limited in their ability to allocate time to their portfolio companies. Furthermore, projects such as the conducting of due diligence to streamlining the finance function, designing reporting decks or board reporting, and other aspects of the finance operations transformation process may lie outside the core skill sets of the institutional investors. In a recent engagement, Accordion designed a new business metric tracking process and built a consistent reporting format from scratch to consolidate the daily and weekly operating metrics for a company’s four global business units. The Head of the Private Equity Portfolio Operations group noted that Accordion’s “KPI dashboard still sits on our company CEO and operating partner’s desk every single week.” Moreover, from the perspective of the CFO or the finance team, it may be less intimidating (and disruptive) to have an external counterparty working within the team who is available to coach and answer questions than working with
Launched in Dubai in 2012, bringing experienced professionals from the US and around the MENA region to bridge shortages in team bandwidth.
the sponsor directly during the transition period. Furthermore, in companies that are evaluating growth opportunities (whether or not it has received funds from institutional investors), the CFO’s finance organisation must operate as the foundation for the company to achieve its strategic objectives. The finance organisation accomplishes this not only by providing clear reporting and benchmarking on a monthly basis but also through vigorous financial analysis to assess the impact of strategic alternatives. These types of analysis may include evaluation of expansion opportunities and the consequences of investment in capital projects, mergers, or raising debt or equity on the company. In addition, it is often true that a financial operations overhaul is necessary to help the finance team support the company as it continues to grow. Juggling all of these extra
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MARKET OUTLOOK
Accordion
projects and analysis with dayto-day tasks can be a formidable task. To support all of these competing needs, the finance team may need assistance for a temporary period of time. A bolt-on execution team may help the finance organisation to streamline its operational processes, to evaluate and select new systems, and to provide expertise from finance professionals with experience in specific areas such as evaluating new capital projects, fund raising, and expansion into new markets. Accordion recently completed an engagement for a major e-commerce retail company creating an operating model to automatically capture accounting system output and a valuation model to incorporate detailed revenue forecasting, bolt-on acquisitions, capital management, and long-range scenario planning. The CFO of the company noted that “the operating model [Accordion] built just saved the finance team
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several hours of manual updates each week and has given me consistent visibility into the [company’s] operations.” Accordion helps to act as a partner to institutional investors and sponsors within the company to help execute on their 100-day plan which is often the most important period of any new investment. As part of the first 100-day plan for a newly acquired private equity portfolio company, Accordion rebuilt the company’s operating model from the ground-up, stress tested business driver assumptions, and created a KPI dashboard and robust board reporting package. The Vice President of the $17 billion private equity firm said, “Accordion’s skill set was unmatched for this portfolio project’s needs, relative to traditional consulting firms.” The model is more relevant than ever to the GCC region. As companies within the GCC grow, it is important to develop the internal support mechanisms. Finance organisations at these firms are expressing a desire to become world-class finance organisations. The talent and expertise may not be readily available to companies to meet this goal. Accordion’s resultsoriented team allows clients to bring in short-term resources into the team and translate best-practices into action. “This year we installed an interim CFO for a company in the GCC region,” explained Deval Dvivedi, a board member and Managing Director at Accordion International. “The CFO of the group wanted to build a world class finance organisation and we were
As companies within the GCC grow, it is important to develop the internal support mechanisms. Finance organisations at these firms are expressing a desire to become world-class.
asked to help put many of the processes and efficiencies in place to achieve this goal. The first phase of this project included FP&A improvements and enhancing reporting efficiencies to allow the senior management to make actionable decisions to continue growing the company.”
Long-term impact The role of the CFO and the finance organisation’s import to the success of a company will continue to grow. Education will be paramount as institutional investment increases within the region and GCC companies expand into new markets and execute on their growth plans. Institutional investors and companies need to find partners who they can count on to build on this promise as the companies grow. Accordion fills the educational role by working within the finance team to complete this objective. “Where we make the most impact is in situations where it may have been a family-run business that never had any experience with institutional investment.” Explained Leopard: “we can come in for three to six months with an interim CFO and really drive change and professionalise the finance function. We can make this function a centre where the strategic decisions are made by driving more effective board discussions with business analytics and the reporting structure. That’s where we can be effective building architecture in three to six months to take the company to the next level. And after three to six months that’s a proper transition time to go out and find the right full time hire.”
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ADVERTORIAL
Qatar Financial Centre
AN EXCUSIVE Q&A WITH THE QATAR FINANCIAL CENTRE’S SHEIKH SALMAN Sheikh Salman has a picture perfect view of Qatar’s booming economy and all which lies ahead as CFO and Director of Tax of the Qatar Financial Centre (QFC). Here he shares why the nation is one of the world’s finest countries to conduct business and just how the QFC is helping make this possible. How important is your role as CFO with respect to the QFC’s activities? As Chief Financial Officer, my role includes financial planning for the Qatar Financial Centre (QFC), budgeting, maintaining financial records, and reporting to the Chief Executive Officer and Deputy CEO regarding all matters related to QFC finances. Moreover, as a member of the Executive Committee, I contribute and provide financial support to the overall strategic initiatives implemented by the QFC. We work as a team, and share a determination to sustain the QFC’s success. For me, this goal is more important that any individual’s role. How do you balance this role alongside your responsibilities as Director of Tax? Throughout the QFC’s early stages, the Chief Financial Officer has always taken the lead on tax-
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related matters, which is why he has also held the title of Director of Tax. The two roles complement each other well. As Director of Tax, my key responsibilities include the effective operation of the QFC Tax regime, ensuring compliance by all QFC taxpayers and implementing the QFC’s tax regulations’ key principles of fairness, transparency and efficiency. Strategically, I continuously ensure that the QFC Tax regime is relevant to our increasingly globalised and competitive financial landscape, and that the QFC maintains its ability to attract international and local firms. What types of tax challenges do new businesses face when entering the Qatari market? There are no specific tax challenges facing new businesses entering the Qatari market. In fact, we believe that the QFC’s tax regime is one of the world’s most attractive. Qatar
“At the QFC, we recognise that Qatar’s ambitious public infrastructure and human development projects require the support of a strong financial and business services environment.”
has two tax systems which run parallel – the State Tax System covered by Law No.21 of 2009 and the supplementing Executive Regulations and the QFC Tax Regulations issued in 2010 and amended in June 18 2014. Our aim is to ensure the transparency of the QFC’s tax rules and guidelines to existing firms and for new businesses setting up in the QFC. The QFC tax regime is imposed on entities licensed within the QFC. The QFC is not a tax haven. It is a financial centre in which companies and businesses can operate onshore in Qatar, regionally and internationally. In developing its tax regime, the QFC has taken a unique approach compared to financial centres in the region, adopting a low tax rate and a transparent, efficient administrative process. Drawing on established features of other tax regimes, it is clear in its application and effect and straightforward in approach. The QFC’s tax regime is among the most favourable in the
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ADVERTORIAL
Qatar Financial Centre
Sheikh Salman, Qatar Financial Centre
world, with a tax rate of just 10% on profits that are sourced locally. However, a number of exemptions and relief are available to encourage certain businesses to set up in the QFC. For example, wholly owned Qatari companies can now apply for the 0% concessionary tax rate. Moreover, there is no withholding tax on payments of interest, dividends, royalties and management fees to or from QFC entities. In June of 2014, we introduced new tax regulations that would help Qatari-owned entities investing in Qatar by allowing them to opt for the zero-tax rate on their operations conducted from the QFC. This policy is in line with the government’s aim of growing Qatar’s private sector. In which ways is the QFC preparing for Qatar’s hosting of the World Cup? Qatar is fully committed to delivering on its promises in the
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upcoming Qatar 2022 FIFA World Cup™. However, Qatar’s plans for economic diversification and human capital growth pursuits are well enshrined in the Qatar 2030 Vision, which, in terms of magnitude, far outweighs the FIFA World Cup™. In this sense, the tournament can be seen as a means to an end rather than an end in itself. At present we are seeing substantial public infrastructure investment in diverse projects such as Lusail city, the Qatar Rail project, the new Hamad International Airport, the new Doha Port and Qatar Foundation’s Education City. At the QFC, we recognise that Qatar’s ambitious public infrastructure and human development projects require the support of a strong financial and business services environment. More than ever, as this infrastructure investment programme gathers momentum, Qatar needs to attract the necessary skills and expertise to ensure that economic growth and diversification remain sustainable. The QFC is preparing for the Qatar 2022 FIFA World Cup™ and beyond by providing the necessary legal, regulatory and financial support to local and international firms. The QFC has an important
role to play in developing a strong private sector in Qatar, which will contribute to the creation of jobs and encourage local and international investments in a diversified competitive economy. The QFC platform can now be utilised to support a variety of services that relate to Qatar hosting the 2022 FIFA World Cup™ including all types of consulting services, legal services, IT services, marketing and brand management services, PR firms, advertising agencies, recruitment firms, and accounting/audit firms to name a few. Do you anticipate changes in the Qatari business landscape in the years ahead? If so, how is the QFC staying ahead of the curve? Yes, I believe that as Qatar is growing into a regional economic powerhouse, and its business landscape is consistently evolving. Qatar is opening up to the global economy and is continuously encouraging private enterprises, SMEs and youth entrepreneurs to enter the local market. These initiatives will prove instrumental in bringing the 2030 vision of economic diversification to fruition. The QFC is also continuously updating and expanding the scope of firms that can be licensed. We have always prided ourselves in understanding the requirements and needs of the Qatari economy. As it has become increasingly diversified, we have adapted our approach in order to broaden the number of business sectors that we welcome. We are well aware of both the local developments and the global context and are building a flexible, adaptable platform that can be the ideal platform to capitalise on the regional opportunity.
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INTERVIEW
Proclad
ControlleD
Cladding Proclad, a global leader in oil & gas cladding solutions understands the importance of expanding as the businesses history is steeped development. Financial Controller Mark Downie explained to CFO Magazine how the firm entered the region and his role within ongoing activity related to M&A.
How did Proclad launch in the Middle East? Proclad Group is the world leader in the provision of Corrosion Resistant Alloy (CRA) cladding solutions for the Oil & Gas industry with manufacturing sites in the UK, the UAE and Singapore. The origins of the Group go back over 40 years since the original business started as a CNC machining subcontractor to the major Oil & Gas Original Equipment Manufacturers (OEMs). It was a natural progression to move into CRA cladding where Proclad established its name as the market leader in CRA cladding solutions and the Proclad brand became synonymous with quality, setting the global standard in the industry. Proclad’s Middle East operation started in 1997 in Abu Dhabi. In 2010 a new holding company was created in DIFC, coinciding with the opening of a new flagship facility for the Group in Dubai – the largest single site CRA cladding facility in the world – representing an investment of over $100m. Proclad’s Dubai facility continues to provide CRA cladding solutions for major Oil & Gas projects worldwide. Has M&A played a role in the company’s growth over the years? Proclad’s growth over the years has been achieved through a combination of organic growth as well as a number of acquisitions and the establishment of agreements/joint ventures with key strategic partners. Through use of specifically targeted, key acquisitions, Proclad
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Group has successfully added and integrated a number of additional related operations which directly support the core CRA cladding activities which include induction bending, heat treatment and forging. This has given Proclad a distinct competitive edge in being able to offer a one stop shop for clad products. Now that the flagship facility in Dubai has been set up and running successfully for over four years, with a record level of orders across its businesses worldwide, the focus has moved to future expansion plans in the Middle East and further afield. The Group remains open to further M&A transactions where there is an opportunity for synergy with the Group’s existing activities, including further horizontal and vertical integration where we see an opportunity to add value and there is a good cultural fit between the businesses. What drives Proclad’s desire to expand? Proclad’s M&A activity is driven by the opportunity to add value in the project supply chain, complimenting existing product offerings. From its initial beginnings as a cladding and machining sub-contractor, Proclad has become the turnkey pipeline solution provider of choice. This has been achieved through the investment in and continuous development of inhouse technology and expertise teamed with targeted acquisition of businesses which increase Proclad’s share of the total
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INTERVIEW
Proclad
project value. Two examples of such strategic acquisitions are Proclad Induction Bending and Proclad International Forgings. All pipeline projects require bends and (forged) fittings and flanges and to develop the necessary expertise organically, obtain necessary approvals etc would be prohibitively time consuming. Through making these acquisitions, Proclad has been able to better control our projects’ critical components, increase top line revenue and bottom line profitability, reducing the need for sub-contracting on projects as well as gaining new product lines to sell in their own right. This creates significant synergy within the business – related issues are more easily resolved and worked on in cooperation, logistics are centralized and there is one responsible management team. It also gives us the opportunity to roll out and replicate the acquired business expertise in other Proclad locations at a lower cost and limited risk. As Proclad is a quality driven, customer focused business, these are the key cultural values when considering any acquisition. As Financial Controller, the financial implications of any transaction are of the highest importance to me be it the business plan assumptions,
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“Through acquisitions, Proclad has been able to better control our projects’ critical components.”
initial capital funding, working capital finance or ROI/payback. However, the strategic advantage of an investment should not be overlooked and can offset the perception of lower financial returns where the risk of not investing is real but difficult to quantify. How imperative is the bond between Financial Controller and CEO whilst working towards Proclad’s continued expansion? Having worked directly for the CEO for over 3 years, it has greatly helped our relationship that I have known him for more than 15 years. We meet most days but as 2 self-confessed insomniac, workaholics, we also communicate regularly with the office, often at odd times of the day, particularly if one of us is travelling. There is a great deal of mutual respect and I believe it is essential that the CEO and Financial Controller are on the same page when considering expansion of the business. The CEO’s role is to create the vision, my role it is to convert this into a prioritised, appropriately funded, deliverable plan. I could be described as a counterbalance to the CEO but I consider my role to be more of a facilitator to ensure that the CEO’s vision becomes a reality. The role is certainly challenging, never dull and no two days are the same. With current plans for further worldwide expansion of the Group, I expect the next 3 years to be busy on the M&A front for Proclad.
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MARKET OUTLOOK
Aldar
Aldar on the rise Abu Dhabi-based real estate developer Aldar weathered the global financial storm of 2008-2009 to emerge stronger and primed for growth. In an exclusive discussion with CFO Magazine, Aldar Chief Financial Officer Greg Fewer speaks about the company’s improved fortunes, a string of ratings upgrades, and his experience driving through a merger with Sorouh Real Estate in a rare case of major M&A activity in the Middle East.
As the financial crisis of 20082009 rippled through global markets causing unforeseen disruptions, the UAE’s real estate market was thrown into disarray, with the mid-2000s boom quickly turning into a slump as buyers vanished and newly constructed towers were left desolate. Just five years later, the property industry is back on its feet, with the major developers Aldar Properties and Emaar Properties prospering in their respective home markets of Abu Dhabi and Dubai.
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The journey has not necessarily been smooth, with corporate restructuring and recapitalisation necessary for many real estate players. In Aldar’s case, the key to a brighter future lay in a successful merger with fellow Abu Dhabi developer Sorouh Real Estate, which was completed in mid-2013. The combination created by far the preeminent property company in the Emirate, with assets of around US$12 billion and a land bank of 77 million square metres. Aldar’s Chief Financial Officer Greg Fewer says as a result, the
“As the Emirate’s bellwether developer, we value being large, strong and stable.”
company is not only back in growth mode, but starting to launch and sell developments again. The company has the financial strength, through a strong capital base and a significant stream of stable recurring revenues, to prosper through the business cycle. “We have land in all four corners of the Emirate, so when we see opportunities we’ll have a plot of land close where we can activate product. As an investment-grade counterparty we do this more efficiently and more quickly,” Fewer said.
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MARKET OUTLOOK
Aldar
The Abu Dhabi government-blessed merger between Aldar and Sorouh was instrumental in creating a stable and sustainable real estate industry.
Greg Fewer, CFO, Aldar
“As the Emirate’s bellwether developer, we value being large, strong and stable.” The climate was much different when Fewer joined Aldar in December 2011. The company had accomplished much – including building some of Abu Dhabi’s most recognisable landmarks, including the Yas Marina Formula One circuit, and its own coin-shaped office building that punctuates the main approach to the UAE’s capital. But the heavy investment, particularly to establish Abu Dhabi as a
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prime leisure destination, had taken its toll on the company’s balance sheet, and the property market downturn was impacting revenues. “The recent history of the company had been about managing the debt pile of Aldar down,” Fewer said. “There was a financial restructuring and an organisational restructuring in early 2012 and I joined around that time. This lasted for most of 2012 and then we started to organise a merger with Sorouh.” The Abu Dhabi governmentblessed merger between Aldar
and Sorouh was instrumental in creating a stable and sustainable real estate industry and operating environment, Fewer said. Since 2012, when the merger was first tabled, rental and capital values in prime areas have stabilised and increased by as much as 25 percent. “The merger started with a lot of discussions and it was very public. The government of Abu Dhabi was an interested party and had invested a lot of capital in the sector in the form of asset transfers and infrastructure investment,” Fewer offered.
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MARKET OUTLOOK
Aldar
“The CFO needs to be at ground zero for where information is coming to light. Does it make sense for the shareholders? The answer to this needs to be expressed in a financial way.”
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“We all valued a stable real estate sector and made the observation that bringing these two companies together would bring some stability, strength and discipline to the market.” With strong consensus emerging at both Aldar and Sorouh and other key stakeholders in Abu Dhabi that a merger was desirable, the preparation process was driven by a working committee that included key executives from both companies, including Fewer. The committee organised early negotiations, as well as the due diligence and valuation processes. Yet the management and board of each company also had a responsibility to put the interest of their own shareholders first. “The CFO needs to be at ground zero for where information is coming to light and where the key negotiations are taking place because you need to form the recommendation around the financial sense of the transaction,” Fewer said. “Does it make sense for the shareholders? The answer to this needs to be expressed in a financial way. As CFO, you’re ultimately the one who needs to do the assessment and make the determination,” he added. “The CFO needs to see things first hand, take little for granted and be involved in key decision making.” The merger has turned out to be transformational, with the integration process achieving its aims within six months of the deal’s completion, and the company successfully launching three new residential projects in 2014, as well as opening its flagship retail property, Yas Mall, days before the Abu Dhabi
STAT FACTS
77m Aldar-Sorouh’s post-merger land bank in square metres
Formula One Grand Prix in November. Over the last 12 months, Aldar has significantly deleveraged the business, reduced its cost of borrowing and extended its debt maturity profile. Net debt to equity, excluding restricted cash, is now slightly lower than 40 percent, down from 65 percent a year ago, and Aldar benefits from just over AED 4 billion in cash and bank balances. The company’s annualised recurring income has grown to approximately AED 1 billion, from AED 420 million in 2013, and is on course to reach AED 1.6 billion annualised next year. The company has had a strong thumbs up from the ratings agencies. Moody’s and Standard & Poor’s have applied successive upgrades over the last year, and in the last month have both ranked Aldar as investment grade. “The logic behind the merger is proving true. We’ve built a solid platform for growth that is strong, the merger was designed to create a foundation for the Abu Dhabi market,” Fewer said. “And we’re now positioned for the kind of progression which the market requires and deserved. We will sensibly monetise our 77 million square metre land bank by developing new products for the market,” he added. “The merger accelerated our ability to deleverage. It balanced our recurring revenue portfolio, things that are very credit positive. We’re very pleased to see the rating agencies acknowledge this. The rating agency upgrades demonstrate that we absolutely have the financial strength to implement our business plan in an unfettered way.”
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FEATURE
Aujan
A Fluid Partnership The Aujan Group made headlines in 2012 following the purchase by the Coca-Cola Company of approximately half of Aujan’s beverage business, a deal widely reported across the region. Group CFO, Dave Anderson, shares what goes into a merger of this size, what Aujan has planned for the years ahead and how vital the Chief Financial Officer’s role is in a fast changing organisation, such as Aujan Group.
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FEATURE
Aujan
The Aujan Group has extended its reach across an array of industries since its founding more than a century ago. Once a Bahraini trading company, Aujan has survived the drawing of new regional borders, relocation and a number of key acquisitions across vastly different sectors. Today, Aujan Group is a diversified holding company, active in a wide range of industries, including FMCG, Hospitality & Real Estate, and Packaging Materials. The beverage business has been the company’s flagship business throughout its history with the distribution of British fruit juice drink Vimto dating back to 1927 interrupted only by World War II. Fruit juice brand Rani later supplemented Aujan’s beverage lineup and today acts as the Group’s flagship offering. Four years ago, the beverage portfolio was further complemented with Barbican non-alcoholic malt beverage products, following the completion of a progressive purchase of the global brand rights by Aujan. Existing as the embodiment of Aujan’s entrepreneurial flair, the combined portfolio reflects the spirit of the organisation, eliciting family values, creativity and the culture of the region. “After 85 years in the region, Vimto is synonymous with Ramadan, as the brand
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focusing on bringing families together. Rani float is a range of flavored fruit juices with real fruit pieces tailored for Middle East consumer preferences. And finally Barbican is a non-alcoholic malt drink. So you’ve got three different perspectives which are very relevant to the Middle Eastern environment and culture,” said Dave Anderson, Managing Director and Group CFO of Aujan Group Holding. “That’s the essence of our approach – a deep connection to the region coupled with brand building on an international basis.” As Aujan’s beverage product range expanded and the business model shifted from a sales to a marketing orientation, the business was growing at about 20 per cent a year through the period from 2005 to 2011, meanwhile its geographical footprint also expanded beyond the UAE and KSA to include new regional markets such as Egypt, Iraq and Iran exposing the Group to new levels of complexity and risk. Nearing a billion dollars in turnover, Aujan recognised the need for an organisational transformation, requiring new skills and capabilities to secure a sustainable growing business; subsequently pairing with a world class organisation to assist with the transition.
Aujan’s partnership with CocaCola became the largest investment in the Middle Eastern consumer packaged goods sector.
In 2012 Aujan formed a JV with Coca-Cola when the latter made a $980 million investment for a 50 per cent stake in Aujan’s beverage portfolio to establish the Aujan Coca-Cola Bottling Company (ACCBC). The deal was initiated in 2006, and was completed after six years of preparation and analysis. The partnership became the largest investment in the Middle Eastern consumer packaged goods sector. Said Anderson: “Although we explored a variety of options to transform the beverage business, the CocaCola partnership provided compelling synergies. Cocaola had a well-established global reach and was interested in strengthening its position in the Middle Eastern market. Aujan had a strong presence in the Middle East region within the wider juices beverage category and a strong portfolio of well established brands and was interested in a platform for global expansion. We also recognised fundamental similarities between our companies’ cultures and values. Overall we felt our companies were well suited to work together.” Entering its fourth year, the merger has proved the value of the long period of discussion and preparation. The deal’s six-year preparatory phase
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FEATURE
Aujan
RATIONALE FOR THE DEAL
Global opportunities for Aujan brands
Aujan brands with excellent positions versus Pepsi
Coca Cola’s technology and expertise Local expertise Coca Cola has influence Consolidation of Coca Cola bottlers
A platform for making a regional “system”
Coca Cola sees juice as a top priority
Juice capability
SYNERGISTIC enabled Aujan and CocaCola to clearly identify investment and organisational development priorities and to start delivery of operational improvements as early as possible. With a well defined strategic direction, the Group continues to explore partnership opportunities with regional Coca-Cola bottlers, and has recently acquired a majority stake in the bottler in Lebanon. A key aspect to Aujan’s approach has been its ability to not only diversify into a number of sectors, but also to enter volatile markets and take risks using its on the ground capabilities, combining technical skills with strong local knowledge. “Wherever we compete there are a few critical drivers for us. First of all a strong
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“We are prepared to take the risks of operating in locations which others would find difficult, and as a result our growth has remained robust.”
brand, secondly, we work with world-class partners, thirdly, of course, is our ability to attract and retain the best people, and finally, our experience of managing risks in challenging geographies. We are prepared to take the risks of operating in locations which others would find difficult, and as a result our growth has remained robust despite a turbulent economic background,” offered Anderson. “For example, we have a large business in Iran where we have been able to utilise our on the ground capabilities, combining solid operational knowledge and a well established distribution system. This will allow us to explore further expansion of the scope of our business in the coming years.”
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FEATURE
Aujan
Beyond Iran, Aujan has also been able to develop the business in what Anderson refers to as “pioneering markets” such as Iraq, Egypt and Algeria. And beyond the beverage business, Aujan has amassed a sizeable real estate portfolio primarily focused in Mozambique and Dubai over the last 20 years. In Mozambique, Aujan’s Chairman has built a wide range of relationships in the East African coastal nation. This close attention to long term partnerships together with a long term vision focused on Africa’s economic development, aimed at the country’s hospitality sector in particular, has been a key driver of success. Over the last 20 years and until the recent oil and gas boom, Aujan had been the third largest foreign investor in Mozambique. Anderson believes that an important aspect to the Group’s track record in the development of hospitality investments in Mozambique is the fact that Aujan was prepared to take early mover risks but only if it was also able to have the right on the ground capabilities. He said: “We made sure to recruit a local team and local consultants who have helped us do business there. We are the only hospitality operator in Mozambique that also has a property development business. As such we have people who are skilled at construction and design. As a CFO I think it is very important that you are tuned
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Aujan has amassed a sizeable real estate portfolio primarily focused in Mozambique and Dubai over the last 20 years.
into the external environment to make sure that you are picking up all the right signals about how that market you are working in is evolving. You need to have a solid understanding of what it takes to be successful and how best to manage risk.” The Group’s Hospitality & Real Estate business is its largest by asset value whilst its FMCG beverages business is its largest by turnover of about USD 1 billion.
GLOBAL STATISTICS Of all deals given serious consideration, only about 20% actually happen Of the deals that do happen, only about 30% can be considered successful
GETTING DEALS DONE - STAGES Doing the right deal Analysis and risk management Planning and Preparation Completion Delivery
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FEATURE
Aujan
MY TOP TEN M&A LESSONS: Link deals to strategy, core competencies and risk appetite Start with the end in mind Do the due diligence Find partners you are compatible with regarding values, culture and ways of working Get the best legal support Integrate quickly Build relationships over time Understand the regulatory environment, including investment protection Plan risk management approaches The right tax, legal and capital structures can make a big difference
Anderson’s experience with Aujan has made clear just how important the strategic dimension is to the CFO role, particularly the way in which strategy is clearly stated and understood by all decision makers. “Having a clear, well understood strategy with coherent guiding principles, helps both in filtering of investment ideas and in the delivery of the specific organisational competencies that are critical to long term success,” he says. Managing a complex multi-industry portfolio requires an excellent
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“As a CFO I think it is very important that you are tuned into… how the market you are working in is evolving.”
understanding of potential market returns, but also a solid and routine assessment of risk. As Anderson says “taking managed risk in challenging geographies is central to our approach.” Another critical challenge is the recognition that in a fast growing, complex and dynamic organisation you can’t do everything. As an international business in a region of high potential with increasing levels of competition, the Aujan team firmly believes that a key driver of success is to be really excellent at a small number of critical tasks. The vital role of the CFO has proven itself along each step of the Aujan journey, specifically in four critical dimensions: • Architect of the key strategic investment principles • Assessing potential returns by getting close to the market • Identifying and building capability to deliver investment plans • Actively identifying and managing risk The primary focus is on understanding the market, building partnerships and developing people, but Anderson also makes it clear that operations need to be disciplined, well controlled and sustainable. “We have learned that we only want to do business where we can fully professionalise our operations from the start.”
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BUSINESS BANKING
HSBC
The Continued Evolution of Business Banking Banks across the region are responding to the economy’s resurgence by extending more credit and taking on new responsibilities key to their client base.
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BUSINESS BANKING
HSBC
New regulatory efforts have also been introduced to reduce the probability of potential volatility.
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The Middle East is gradually lifting from its crisis induced slumber and the banking industry has proven no exception to a widespread return to growth. The effects of a market once more eager to spend is showing its readiness via business banking in the form of more lending. “2014 has been a very robust year in the UAE across sectors in business banking. These banks have been showing financial promise. Most of the banks have been showing significant improvement. As a result, lending keeps on going up. From our perspective this is mostly proven by the market’s recovery as it has recovered much faster than we expected,” said HSBC Middle East’s Head of Business Banking UAE, Chaker Zeraiki. “The improvement of market conditions has implied that we’re very much back to business, back to lending.” In 2014, HSBC allocated one billion dirhams ($272 million) to international SMEs in the UAE as a heady investment into a future Zeraiki expects will remain profitable for businesses willing to take calculated risks. “We don’t expect 2015 to be any different from 2014. We believe the levels of entrepreneurial confidence and liquidity will remain. The UAE is expected to continue attracting a fresh flow of investments across the globe and to act as a gateway to the MENA region. There is a significant amount of visibility for this region,” he said.
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BUSINESS BANKING
HSBC
“Banks are increasingly being viewed and consulted with as a strategic advisor who can help deliver the business’ vision.”
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An increase in business banking activity and the relevant appetite for lending due to a liquidity surge has driven even larger calls for CFO involvement. Chief Financial Officers are finding themselves becoming more closely aligned with banks for a number of reasons. Chief among the CFOs post-crisis touch points are risk analysis, strategic direction with respect to mitigating undue exposure and spotlighting new business opportunities. New regulatory efforts have also been introduced to reduce the probability of potential volatility, creating a prescient need for closer collaboration between CFOs and their respective banking institutions. Said Zeraiki: “Banks are now operating in an increasingly complex regulatory environment, intended to make financial institutions and markets more transparent and less leveraged. It is critical to work in collaboration with regulators to ultimately help reinstate confidence in the market.” Finding stability whilst balancing liability and profit has been a major deliverable for business banking. The presence of regulation is a trend which Rahul Oberoi, Head of Business Banking Division, RAKBANK, believes will continue in the years ahead in tandem with banks reaching their targets. “Effective balancing of risk and reward is always the single largest success factor in any financial services
STAT FACTS
$272m HSBC UAE’s 2014 International Growth Fund
company,” said Oberoi. “We believe we will continue to see an increasing trend of banks trying to expand their fee income base though even this isn’t without risk. Globally we will continue to see increasing pressures from regulators, especially with regards to compliance and capital adequacy, though the latter is not a significant issue in the UAE.” In addition to needs relevant to risk, the business banking trend watch also includes the bolstering of expertise and innovation. Banks are widening their offering to include more than traditional banking services and as such must create platforms for providing a range of consultancy to the businesses which rely on them. “Banks are increasingly being viewed and consulted with as a strategic advisor who can help deliver the business’ vision. For example, HSBC launched its Growth Series events in the UAE. This is a series of events dedicated to pragmatically helping small and medium size enterprises achieve their growth ambitions,” offered Zeraiki. “Innovation is becoming increasingly important and technology is becoming a clear driver in improving customer experience and ensuring that their evolving needs are appropriately met. Businesses want to become more effective, connected and innovative in the way the relationship with their bank is being managed.”
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PERSONALITIES
Raju Menon
THE CHAIRMAN’S VIEWS By Raju Menon, Chairman - Institute of Chartered Accountants of India , Dubai Chapter; Chairman & Managing Partner - Morison Menon Chartered Accountants
The Dubai Chapter of the Institute of Chartered Accountants of India is one of the first overseas chapters established by the Institute of Chartered Accountants of India. The Chapter has around 2200 Chartered Accountants as members who are in key positions such as CEO, CFO, Finance Manager, Controller, Senior Accountant and Auditor of corporate houses across the UAE.
The Role of ICAI Institute of Chartered Accountants of India (ICAI) is a statutory body which was established in 1949 for the regulation of the profession of Chartered Accountants in India. While the ICAI has around 217,000 members at present, approximately one million students are pursuing the course in various centers at various stages. Besides having 23 Chapters in foreign countries, this apex body of chartered accountants also has five regional head quarters, 128 branches, 275 study centers and a million students, currently making ICAI the second largest professional accountants’ body in the world - second only to the American Institute of Certified Public Accountants (CPA).
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In this age of information explosion and technological advancement the chartered accountant has to keep himself well informed and prepared. With this objective in mind, the ICAI Dubai Chapter conducts technical sessions, workshop and seminars on pertinent topics like International Financial Reporting Standards, audit, risk management, accounting and corporate governance as part of the Continuing Professional Education (CPE) program. Our aim is to equip the young generation of chartered accountants to face the challenges and capitalise on the opportunities of tomorrow.
The priorities As the Chairman of the Dubai Chapter of this prestigious body, myself along with the managing committee will take steps to ensure that members have the right skills to serve global markets which are regularly updated and are relevant in the changing economic order. ICAI’s Dubai chapter will continue to provide holistic education, effective practical training and continuous professional development to ensure that the knowledge base of the profession
keeps pace with emerging global practices and innovations. Indian Chartered Accountants are rated the best globally for their depth of knowledge, ethical standards and superior work standards. However I am doubtful if they have received their due in this region. ICAI’s Dubai chapter will carry out a comprehensive branding exercise aimed at enhancing and strengthening the image of ICAI among the Arab and local business community. Currently, there are around 600 students in the UAE pursuing the Chartered Accounting Course and ICAI has exam centers in Dubai and Abu Dhabi. I believe the student intake will surge if the course is properly promoted in schools and universities. The branding exercise will be designed in a way which keeps this motive in mind. I am also committed to ensure that the accounting students get the right kind of training and exposure, which will nurture them into the best finance professionals. As an initiative to increase student involvement ICAI Dubai Chapter is taking the lead to create a students’ group which will act as a platform for CA Students to learn, share, participate and perform. The association will facilitate a conducive environment for proper career orientation and development by organising lectures, seminars, workshops, conferences and study circle meetings. ICAI Dubai Chapter will support the students’ association by mobilising faculties and providing class room, library and research facilities. The chapter will continue as a proactive, innovative and flexible organisation in equipping Chartered Accountants with top quality education and values.
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How to Cut a Deal When an M&A Looks D.O.A. By John L. Coker
At 9:20 on Monday morning, the CFO of Genes23 Corp. takes a phone call. The voice on the other line says, “Hello, I’m Barbara Swenback of the London office of FinAd Partners. We have a client that seeks to be acquired— DiaCorp, in Dover, England. I’m sure you know them. Can we talk?”* Swenback spent the next 20 minutes describing how DiaCorp has been successful as the world’s second largest provider of genetics tests to determine a person’s predisposition to certain serious diseases, either from inheritance or gene mutation. She acknowledged that Genes23 is the largest player in the field. Swenback concluded with a startling revelation: “Now I’ll share a problem with you. We at FinAd Partners have been directed to seek interest from anyone but Genes23 Corp. I presume that the companies’ past interactions have been more difficult than just energetically competitive, but I thought I’d call anyway.” The CFO explained that the difficulties between Genes23 and DiaCorp occurred during the term of a previous Genes23 executive team, and the company
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is now enthusiastic to move on and learn more. He asked why DiaCorp is selling and what Genes23 can do to become a potential partner. Swenback responded that an in-person visit to DiaCorp’s headquarters in Dover, England, to meet with the CEO, founder, and majority shareholder, Dr. Randolph Corvan, might be successful in breaking the ice and reversing the negative perceptions. The CFO agreed to seek executive and board approval to take the next, very tentative step of a preliminary, exploratory meeting. Meanwhile, Swenback said she’d talk to Corvan to attempt to convince him to consider loosening DiaCorp’s “no-Genes23” stance enough to entertain a meeting. Forty-five minutes later, the CFO’s phone rings again. “Swenback here. Can you be in Dover on Tuesday?”
Lesson Learned? Create an Opportunity Proactively. Genes23 needed an opportunity to bring a new dimension of strategic value to the company. With nearly 400 employees, this 16-year-old, $200 million
This 16-year-old, $200 million firm had been growing rapidly until the past two years, during which there was only incremental improvement.
firm had been growing rapidly until the past two years, during which there was only incremental improvement. The company created the opportunity by: • Answering the phone. Simple, right? But in this case, there would be an understandable tendency to go no further after hearing that FinAd Partners is a mergers and acquisitions (M&A) firm representing a long standing, difficult, and deeply adversarial competitor. • Avoiding a negative atmosphere. The CFO wasn’t insulted when he heard that FinAd had been directed to steer clear of Genes23, nor did he argue, challenge, or counterattack DiaCorp’s unusually negative, implicitly condescending position. • Ignoring the competition. The CFO didn’t ask about who else FinAd would be contacting or what responses had been elicited so far. Evidently, he knew that (1) he would be unlikely to get any meaningful response, (2) he would appear
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In an era where most people use texting or e-mail as their default modes of communication, the good, old fashioned telephone can open the door to a rare business opportunity. inexperienced for asking, and (3) even if he did receive such information he wouldn’t use it to his advantage (as we’ll discuss later). As you can see, in an era where most people use texting or e-mail as their default modes of communication, the good, old fashioned telephone can open the door to a rare business opportunity.
The Company Reacts The CFO interrupted his busily e-mailing CEO with, “Pardon, Boss. My phone rang twice this morning, and I think I’ve got some exciting news for you.” He described the phone calls from FinAd Partners and the barriers that would need to be torn down in order to pursue this opportunity. Within a few days, the two executives had prepared an analysis outlining the important strategic reasons for taking the next step in putting the companies together:
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Geographic Market Synergy. Genes23 has a laboratory at its headquarters in Pasadena, Calif., and has the deepest market focus in North America. DiaCorp has a laboratory in Singapore and the top penetration in Asia. With DiaCorp’s secondary lab in Dover, England, and Genes23’s in Paris, France, the combined companies would be a major force in the field of diagnostics in Europe and throughout the developed world. They could improve sales significantly by offering each firm’s proprietary products to the other’s customers.
Laboratory Technology Synergy. Each of the companies has developed proprietary processes that improve the accuracy of the genetic code analysis for certain disease-state tests. But few of these process improvements address the same testing specifics. Together, applying each company’s proprietary technology to the other’s tests, they could provide the diagnostics community with superior genebased science and forecast the revenue improvements that would result from capturing customers from third-party competitors.
Next steps After working with the CFO to put the finishing touches on their analysis, Genes23’s CEO called the company’s nonexecutive chairman of the board, an investment banker in New York, and described the opportunity (albeit, with significant hurdles still to clear). The chairman scheduled a conference call with the board for the next day. In the meeting, the CEO presented the executives’ analysis
of the geographic market and laboratory technology synergies. He concluded with several lesswel-quantifiable yet potentially valuable perks of a successful M&A, including, for example, scientific cross-training of laboratory technicians and a reduction in sales-force travel as the teams are combined and geographic territories assignments are assigned more tightly.
After the CEO’s presentation, one banker board member asked against whom they would be bidding. The CEO replied, “We didn’t ask. But you can take a random sample from the last World Diagnostics Conference attendee list and do as well as such a query could have done.” The board members chuckled in unison and approved the acquisition plans. The CEO leaned over to the CFO, who was in attendance ex officio, and said, “Tell FinAd we’ll give it a go on Tuesday. You’ll be our representative in Dover.” Lesson Learned? Create Value Strategically. The Genes23 executives convinced the board to proceed by envisioning the value strategically—through geographic market penetration and proprietary technology interaction. Strategic value brings real value to the buyer’s customers, to the seller’s customers, and, therefore, to shareholders. Regardless of industry sector, strategic synergies allow for crosssharing of skills, experiences, and information across all the active functions of both businesses, including, for example: 49
• Proprietary research data and findings, • Customer survey results, • Data regarding complaints, and • Training facilities and capabilities.
A lack of synergy triggers the decision to send the acquired company Buyers commonly make the back onto mistake of overlooking strategic the market... synergies with nonquantifiable firms with a value in deciding whether clearly exor not to do a deal. While ecuted vision putting a price tag on these synergies is at best difficult and rarely let requires some imagination, that happen. recognising and appreciating their existence and strategic importance adds a vital cornerstone to the foundation on which the decision to go forward depends. We shall soon see how Genes23 wove the value for the inherently nonquantifiable attractions into its evaluation. Often, M&A decisions aren’t founded in strategic improvement but in the irrational urge to keep the target out of the hands of the competition. If the players lack the strategic synergies of Genes23 and DiaCorp, the acquiring company could suffer negative financial and operational consequences. You’ve surely read about the occasional situation in which such a lack of synergy triggers the decision to send the acquired company back onto the market, often for a substantial discount to the original acquisition price. Firms with a clearly executed vision rarely let that happen.
Introduction in Dover “Dr. Corvan,” began Genes23’s CFO, “I’m here in Dover to learn from you how Genes23 50
and DiaCorp can bring together the expertise, the science, and the geographies of our companies to improve the diagnosis of genetic predisposition for serious diseases around the world.” One week after the initial call from FinAd, the CFO spent two full days in Dover, looking in microscopes with the VP of Research, studying sales territory maps with the VP of Marketing, and discussing the challenges of retaining key employees with the director of Human Resources. He expressed enthusiasm and asked many questions. He encouraged DiaCorp’s executives to discuss how a combination of the companies might improve their offerings to providers of medical services. When the CFO returned to his office in Pasadena, the CEO welcomed him back and said, “Yesterday, Barbara Swenback from FinAd called to say that our bid for DiaCorp would be enthusiastically received and considered. Good job!” Lesson Learned? Create Vision Integrally. Genes23 overcame the seller’s reluctance by fostering the vision of a new combined team that would be best prepared to create unequalled value in a key, evolving sector of medical diagnostics. The CFO created that teamwork foundation by: • Meeting in person - bringing the cement of interpersonal connection to the bricks of an envisioned coalition; • Being prepared - developing in advance the knowledge to understand what he would be seeing in the microscope, on
the customer locations maps, and in the employment history charts; and • Accentuating the positive - focusing on what the two companies could do together rather than on what they couldn’t. The CFO also wisely avoided attacking the competition. Instead, he created a vision of an integrated team by engaging directly with DiaCorp as if they were already a merged entity.
The Company Bids Genes23’s CEO addressed his executive team with, “Now, let’s get down to business.” The instructions from FinAd were clear: Any considered offer for DiaCorp would be for all cash at closing. Declarations as to the methods of operation, post-closing maintenance of personnel, performance payouts, and nonquantitative bid elements wouldn’t be considered. The Genes23 team agreed to base the bid on the net present value (NPV) of the incremental improvements in estimated future EBITDA (earnings before interest, taxes, depreciation, and amortization) of the strategically integrated, combined businesses over the estimated NPV of the EBITDA they had prepared for Genes23 standing alone. The NPV discount rate applied to the future EBITDA improvement forecasts and was set at a rate only modestly greater than the aggregate cost of incremental capital. The team determined to keep this rate low, offsetting much of the discount typically associated with risk of performance www.thecfome.com
with the benefits of the nonquantifiable values. In totality, the bid calculation was a creative “textbook” approach. The board approved it in a teleconference, and it was submitted to FinAd a day earlier than the deadline. Six days later, Barbara Swenback called the CEO with “Congratulations, you won!”
that they would lose a great opportunity. Genes23 also didn’t get caught up in the game of anticipating how the stock market would react to the announcement of a deal as the basis for preparing its actual bid, an unimaginative approach that would be detrimental to their shareholders and the deal itself.
Lesson Learned? Create Victory Imaginatively. The Genes23 bid was victorious because it was created with all the imagination of what the two most successful companies in the field could do together to bring new opportunity to both customer bases, new science to both sets of laboratories, and a new profile for broader customer opportunities. In all potential M&As, imaginatively created value may be found beyond the marketing geography and service science that Genes23 envisioned. Most obvious and common may be the value of one party’s process patents in the manufacturing operations of the other. Another common value can often be found simply in brand name recognition predictively improved sales of one company’s generic product under the recognisable brand name of the other. Predicting the identity and bid levels of the competition is both common and understandable, but the Genes23 team had the imagination to envision the negative results of attempting to do this. They knew that the most likely result would be either ensuring success by overbidding or seeking a bargain and bidding so little
Facing a Regulatory Challenge
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Genes23’s corporate counsel closed his congratulations to the CEO with, “Remember, don’t announce anything until we have all regulatory approvals for the deal in place.” Counsel for Genes23 and DiaCorp agreed to file for acquisition approval with the Antitrust Division of the U.S. Department of Justice (DOJ) and the U.K. Office of Fair Trading (OFT). The DOJ quickly responded that the purchase price of less than $1 billion put the deal beneath its current radar screen and waived review. The OFT, however, was still working through its review practices. It soon appeared to Genes23 counsel that the OFT considered the Genes23 DiaCorp deal to be an opportunity to practice and polish its regulatory process. One week into its review, the OFT requested a meeting. Genes23’s CFO flew to London, joined with U.K. counsel, and was greeted cordially by the five-member OFT panel. The OFT chairman opened the meeting by stating, “Our mission here at OFT focuses on considering if there are potential antitrust implications of mergers in which the
In all potential M&As, imaginatively created value may be found beyond the marketing geography and service science envisioned.
aggregate U.K. market share of the combined companies is less than 40%, establishing that as the upper acceptable limit. We’ve calculated your deal at 68%.” The OFT agreed to hold off on issuing a Denied finding if Genes23 could provide any input that might change the evaluation. The company responded swiftly with a two-pronged approach. In the first prong, it carefully dissected the 68% calculation and found many small, boutique genetic-testing firms throughout Europe were doing similar tests but weren’t included in the denominator of the calculation. Their capacities were added to the market size measure. In the second prong, Genes23 took the unusual but valuable step of working with the OFT to get it in independent communication with many of the largest international pharmaceutical companies within the Genes23 client base. The OFT then enlisted these companies to express in writing to the OFT that their laboratories were fully ready to perform such tests themselves, rather than outsourcing them, if Genes23 raised prices in a monopolistic manner. The testing demand of these companies was added to the market size measure as well. Then the OFT called Genes23 to return for a meeting, announcing to the CFO and corporate counsel, “Welcome back. We’re at 38% and won’t deny the deal.” Genes23’s stock price closed that day at $27, after which the CEO announced the deal and talked about his high hopes for the new merged 51
company. The stock opened the next morning at $42. Lesson Learned? Create Acceptance Cooperatively. The company took what looked like a sure denial and turned it into an acceptance by teaming up with the OFT to understand its calculation process and particulars. In the end, it was a win-win for both parties as the experience enabled the OFT to improve its evaluation metrics and identification processes. (Note: The OFT has since closed, and the Competition and Markets Authority has taken over many of its responsibilities.) These cooperative methods are similarly effective in other forums where it is at least valuable or even necessary to get approval or acceptance of the deal, specific or tacit, from shareholder groups, labor union chapters, joint venture partners, and regulatory authorities overseeing corporate aspects other than antitrust. They all tend to work to a more satisfactory conclusion through cooperation rather than through confrontation. A predictable, alternative approach would have been to challenge the process and the particulars, highlighting the OFT’s limited experience and to degrade its evaluation metrics and identification process. Certainly the company could have challenged the assumption that all deals that result in capturing more than 40% of a customer base would lead to monopolistic practices and pricing. Genes23 ultimately succeeded by teaming up, 52
cooperating, and learning, not by challenging, attacking, and lecturing.
A Surprise Phone Call Two weeks after announcing and closing the deal with DiaCorp, Genes23’s CEO got a phone call: “Hello, I’m George Sidsen, the CEO of ServeBio. Last month I presented to our board of directors a five-year strategic plan that depends to a significant degree on having a worldleading genetic diagnostics company. So we determined to acquire either Genes23 or DiaCorp. Congratulations— we can’t believe you successfully eliminated one of our choices! “My board is convinced of our need to make this happen,” Sidsen continued. “Would your board consider an offer for your combined business of $70 per share?” The CEO replied with a laugh, “Not considering such an offer would probably be against the law!” Sidsen then offered to make a presentation to the Genes23 board, but the CEO said he doubted that would be necessary. The Genes23 special board meeting produced an approval for a special shareholders’ meeting in less time than it took to set up the teleconference. Antitrust regulatory approval was investigated and determined to be unnecessary in this case because ServeBio wasn’t in the business of genetic testing. ServeBio teamed with Genes23 to: 1. Create the opportunity proactively. ServeBio conceived and launched the opportunity on its own initiation, seeking to
Genes23’s stock price closed that day at $27, after which the CEO announced the deal and talked about his high hopes for the new merged company. The stock opened the next morning at $42.
present a deeply dimensioned biopharmaceutical services company to the healthcare community. 2. Create value strategically. ServeBio overcame the difficulty of loss of choice to maintain its long-range strategic plan for bringing unique value to its field. 3. Create vision integrally. ServeBio shared its strategic plan and vision with Genes23 to bring pharmaceutical solutions to patients who have inherited diseasetriggering genes. 4. Create victory imaginatively. ServeBio convinced its board that the strategic solution was unblemished by the combination of Genes23 and DiaCorp. 5. Create acceptance cooperatively. At the outset, ServeBio stated its interest in reaching the ultimate decision makers—the Genes23 board of directors. As you can see from what I’ve described in this article, both ServeBio and Genes23 Corp. embraced the creative lessons of M&A processes, and both succeeded tremendously. Without knowing what awaited them on the other end of the line, when their management team heard their phones ring, they answered them. Lesson learned? Make sure you always answer yours, too!
This article was orginally published in the November 2014 issue of Strategic Finance. It appears here with the permission of The Association of Accountants and Financial Professionals in Business.
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FEATURE
Zafco
The Road to Zafco Global tyre manufacturer Zafco started from humble beginnings in Dubai. More than 20 years later, the company is now present across the globe via its own brand and a couple of strategic acquisitions in Southeast Asia.
With an 80% share of the world’s natural rubber resources, Southeast Asia has long had an enormous impact on the tyre industry. Ground zero for the region’s rubber trade exists largely around Malaysia, Indonesia and Thailand. UAE tyre distributor Zafco understands the geography well and has tapped into its production prowess with a set of well-placed global moves. Founded in Dubai in 1993, Zafco has grown as a key tyre
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“As Group CFO I am confronted with challenges related to expansion and M&A evaluation.”
distributor of the world’s best brands. Utilising the UAE’s advantageous positioning between East and West whilst dissatisfied with acting merely as a supplier, the company is in the process of acquiring its second tyre company in Southeast Asia in the last four years and now manufactures its own line whilst finding a market share throughout Europe and the US. Group CFO of Zafco, Rishi Vig, explains the
value in going to the source for the company’s needs whilst implementing the M&A track. “Zafco has been one of the largest tyre distributors in the Middle East. And globally we’re among the top few. But in advancing we’ve had to integrate backward,” said Vig. “When I joined the Group in 2010, I was confronted with challenges from all fronts, from setting the house in order, financing the expansion
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FEATURE
Zafco
“We’re focused on Southeast Asia because it’s the rubber belt, we’re getting our basic ingredients there and labour is rather efficient.”
Rishi Vig, Zafco Group CFO
plan and evaluating M&A opportunities. With all of the core competencies around distribution we realised that we should also get into manufacturing to realise the Group’s vision of becoming an end-to-end tyre solution provider. As such we decided to go backward via M&A. We don’t have a gold competency in manufacturing. And so we’ve completed two acquisitions in the last five years to improve. Our most recent partnership is with the fourth largest tyre
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manufacturer in Indonesia.” Zafco completed its first deal in 2010 with a tyre manufacturing company in Thailand rather similar to the deal struck in Indonesia. In both instances Zafco bought significant minority stakes worth 40%. In Thailand the investment was worth $125 million and has amounted to an annual yield of 800,000 truck and bus tyres for the company. Said Vig: “We’re focused on Southeast Asia because it’s the rubber belt, we’re
getting our basic ingredients there and labour is rather efficient. M&A does not end however, with the closure of the transaction. As a matter of fact, it is the beginning of a new chapter to realise true potential and synergies. It is all about learning to work together with someone from a different culture and background and yet achieve common objectives. We’re hoping to continue setting up our distribution channels in the coming years.” Zafco has done well
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FEATURE
Zafco
Despite the European recession creating a downturn, Zafco brand Zeetex is flourishing.
expanding its business via strategic partnerships as a key method for addressing certain deficiencies found along the road to growth. “If you don’t have gold competencies and you want to set up manufacturing there’s going to be a very difficult learning curve. To cut the path short, the best way to go is with somebody already in the business and in turn integrate your business with them. We’re using this plan to bring along our private labels and build these brands as well as our partners in order to drive sustainable growth,” he said. As the company signs its second partnership in Southeast Asia and continues to distribute its products across multiple regions, Zafco is also moving furthermore into
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STAT FACTS
800K Annual tyre yield as a result of Thai M&A
manufacturing. Zafco’s Zeetex line of tyres was launched a few years ago as a budget global tyre brand and has found success worldwide. While the European recession has created a downturn, Zeetex existing as a budget brand which tests in line with higher priced tyre models has helped to sell more products. “In Germany we are growing, France and Spain have done well as markets for Zafco also. We did something different in Europe by working closely with the bigger retailors as opposed to going with distributors. We’ve decided to take different routes to find success. Whether with M&A in Southeast Asia, distribution in the US or with our own tyre brand in Europe, Zafco will continue to succeed,” said Vig.
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© 2014 Hewlett-Packard Development Company, L.P.
GLOBAL GATHERING
Women in Leadership Economic Forum
The champions of change
A spotlight of women empowerment is held at Dubai’s Meydan Hotel. By Adelle Louise Geronimo
Held under the patronage of His Excellency Sultan bin Saeed Al Mansouri, UAE Minister of Economy, the 16th Women in Leadership (WIL) Economic Forum took place at the Meydan Hotel on November 19-20, 2014. The two-day event gathered over 300 influential thought leaders and captains of industry to discuss the vital role of women in the growing global economy. Since its launch in 1999 the Women in Leadership Forum has been actively promoting economic empowerment of women as well as diversity and inclusion in the workplace. Organised by naseba, a French business facilitation company with on-the-ground presence in major cities across the Middle East, Africa and Asia, this year’s edition of the event has placed ample focus on diversity and inclusion strategies, women shaping the future of investments, the role of women in corporate governance, challenges faced by women in science, technology, as well as the media’s role in positioning women in business, politics and leadership. As one of the most diverse and investor-friendly countries in
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the region, the UAE takes pride in proffering limitless support for the growing involvement of both Emirati and expat women in becoming active members of their respective business communities. As such, the Emirates proved an apt venue for hosting the forward-looking event. The forum kicked-off with a powerful welcome speech by H.E Al Mansouri during which he called for more widespread inclusion of women in key sectors of the economy. The Minister said greater advancements could be made in the area of public and private sector partnership through “the measurement and public reportage of progress achieved in gender equality within organisations.” Said Al Mansouri: “The UAE as a nation has registered significant milestones in women empowerment. I am very proud to share that the UAE has been ranked number one in the world for respecting women according to a report launched by the World Economic Forum’s Global Agenda Council. We are also ranked first among Arab countries in enabling women in leadership and in parliament
A powerful welcome speech by H.E Al Mansouri called for more widespread inclusion of women in key sectors of the economy.
according to the Women Studies Centre at the Arab Women Establishment in Paris.” The event featured presentations and insights from top notch leaders from various industries, putting the spotlight on issues relevant to women’s advancement in today’s dynamic business landscape. WIL also placed special focus on addressing ‘womenomics’ or the need to redesign economies to ensure greater inclusiveness of women in societies. Among the highlights of the thought-provoking event was a keynote speech by Cherie Blair,
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GLOBAL GATHERING
Women in Leadership Economic Forum
“Women in the UAE are now recognising the benefit of becoming entrepreneurs and the nation is witnessing an ever-increasing number of success stories of women who run their own businesses.”
WIL Achievement Awards in Association with Pfizer 2014
HRH Sheikha Hissah Saad Abdulah Salem Al-Sabah,HE Datin Paduka Seri Rosmah Mansor,Sophie Le Ray, HE Sheikha Bodour Bint Sultan Al Qasimi
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wife of former British Prime Minister Tony Blair, and founder of the Cherie Blair Foundation, during which she put great emphasis on the importance of supporting the economic gains of women. Said Blair: “Women’s economic empowerment is an essential element for societies to succeed. Women in the UAE are now recognising the benefit of becoming entrepreneurs and the nation is witnessing an everincreasing number of success stories of women who run their own businesses. From my experience, it shows that if you
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GLOBAL GATHERING
Women in Leadership Economic Forum
GLOBAL WIL ACHIEVEMENT AWARDS 2014 Leading Businesswoman of the Year Valentina Da Luz Guebuza, Chairwoman and Chief Executive Officer, Focus 21, Management and Development, Mozambiqu Most innovative woman entrepreneur Sofana Dahlan, Founder and CEO, Tashkeil, KSA Leading Woman in Public Sector Her Royal Highness Sheikha Hissah Saad Abdulah Salem Al-Sabah, Chairperson, Council of Arab Businesswomen, Kuwait Male Champion of Change Badr Jafar, CEO, Crescent Enterprises, Founder, Pearl Initiative, UAE Best Global Initiative for women’s economic empowerment 5by20, Coca Cola Company Best Local Initiative for Women’s Economic empowerment All Women BPS Center, KSA, TCS in collaboration with GE & Saudi Aramco Most Woman-Friendly Employer – SME British Orchard Nurser Most Woman-Friendly Employer – MNC Unilever North Africa & Middle East WIL Honorary Achievement Award His Excellency Sultan Bin Saeed Al Mansoori, Ministry of Economy WIL Honorary Achievement Award Cherie Blair Foundation for Women
give women the right tools, they will absolutely finish the job.” Panel discussions and workshops were also held throughout the two days of the event, which highlighted women’s continued progress, with a special emphasis on women shaping the future of investments, their role in corporate governance and challenges faced by women in various fields. The forum also shed some light on the impact that the integration of women can have on the future of economies, from a womenomics perspective. Other topics included gender imbalances, engaging men in diversity challenges, unconscious
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STAT FACTS
3,750 Selected WIL attendees
biases in the workplace and women thriving in scientific fields. This world-class occasion also saw keynote speeches from regional and international thought leaders and economic gender diversity as advocated by the likes of Her Highness Sheikha Bodour bint Sultan Al Qasimi, Chairperson Sharjah Investment and Development Authority, Her Royal Highness Sheikha Hissah Saad Abdulah Salem Al-Sabah, Chairperson of the Council of Arab Businesswomen Kuwait, Her Excellency Fatima Al Jaber, Board Member, Al Jaber Group and Chairperson, Abu Dhabi Businesswomen’s Council, and Her Excellency Datin Paduka Seri Rosmah Mansor, Wife of the Prime Minister of Malaysia. During her insightful address HH Sheikha Bodour said: “I consider myself extremely fortunate to be a witness to such progress in female leadership across all walks of life. It is clear that a lot has been achieved and considerable ground has been covered. It is however also evident that much remains to be achieved in creating the right conditions for women to thrive in business in many parts of the world. If we want to create real lasting change, we need to encourage women to take charge of their own empowerment. This is the only way for us to move ahead, and turn opportunities such as this event into tangible benefits.” This landmark occasion also witnessed an award ceremony that recognised business leaders and organisations for their outstanding contributions to economic development through their focus on women in leadership.
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INTERVIEW
Linda Luu
Insuring Growth Risk management has in recent years grown considerably within the CFO’s scope of responsibilities. As the world’s largest privately owned insurance brokerage firm, Lockton has an absolute view of where a winning CFO must stand in an ongoing battle to mitigate threat. Linda Luu, Vice President of Finance, Lockton MENA, spoke with CFO Magazine about the insurance company’s role in the Middle East.
As the CFO’s role continually evolves to increasingly include strategy, brand valuation and more, do you feel the risk management remit has also witnessed growth amongst today’s Chief Financial Officer? As stewards of a company’s financial health, CFOs must demonstrate sound awareness of the business to influence corporate risk appetite and have a robust and flexible internal control system to manage risks. With their increased involvement in areas such as strategy and brand valuation, the CFO will have more indepth understanding of the position and challenges faced by the company. This will allow them to articulate risk and fine tune risk management, and be able to implement a robust and efficient risk management strategy to support risk appetite and future business growth. How is Lockton addressing the widening gap between global regulatory frameworks which exist for finance executives becoming furthermore international? To bridge the gap between
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reporting standards, Lockton has always run its operation based on best business practice which encompasses transparency, clarity and accuracy to reduce the scope for misinterpretation while taking into account the regulatory environment. As part of our associates development program we provide online learning with a compulsory refresher or new modules on technical regulatory standards and updates to ensure continuous development, high ethical standards, total compliance and that we are well equipped for change. How does Lockton’s insurance operation in the Middle East differ from other markets? The Middle East differs from other markets because the region is going through changes that require geopolitical awareness and cultural sensibilities. Also, the region has a low insurance penetration rate with great growth potential and a developing infrastructure which feeds higher than normal GPD growth. With these factors in mind Lockton has had to build an operation that can adapt to a greater level of
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INTERVIEW
Linda Luu
change and uncertainty, and is able to work with local government and regulators insightfully as regulations evolve. Are there particular insurance needs in the MENA region which aren’t utilised as regularly elsewhere? The desire to comply with Sharia law in the MENA region has created demand for Takaful or Islamic insurance which is unique to this region and some other Asian countries. The principles that prevail within Takaful are those of mutuality and co-operation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity to alleviate the burden of loss from unforeseen events to individuals. Lockton has reportedly maintained a steady growth rate for nearly 50 years which surpasses the rest of the industry. How has this been made possible? It has been made possible because we are a client focused organisation, passionate about servicing our clients and developing our associates.
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“With their increased involvement in areas such as strategy and brand valuation, the CFO will have more in-depth understanding of the position and challenges faced by the company.�
Lockton being privately owned has allowed the company to focus on client services and not shareholders. Our corporate structure is flat and provides our clients easy access to a stable team of experts and senior executives that understand their businesses. We see our clients as long term business
partners and incorporate their growth strategy to provide a market leading insurance solution that is flexible and can evolve with a company moving forward. This is why Lockton is able to maintain a client retention rate of 96% ahead of all its competitors and achieve year on year double digit growth.
Linda Luu
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PERSONALITIES
Opinion: Focus
ERP’S FOCUS Group CFO of global IT solutions firm Focus, Mir Fiaz Ali Khan, offers his expert opinion on the industry as seen from the Chief Financial Officer’s vantage.
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The role of a CFO has come a long way over the years, and carries a tremendous responsibility now more than ever. Especially in the world of I.T., where Mergers and Acquisitions seem to be the norm, and organisations in the I.T. domain are being bought, sold or merged more so than in any other industry worldwide. Moreover, the standard rules that used to apply to Mergers & Acquisitions; current value of assets, Intellectual Properties (I.P.), liabilities, goodwill, and projected value over a particular tenure, are no longer enough to evaluate companies’ net worth figures. Furthermore company valuations are now reaching alarming numbers without any cash flows or revenues actualised at all. As such, it becomes critically important that the right
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PERSONALITIES
Opinion: Focus
indicators are used in order to establish the true value of organisations. Various attributes are considered depending upon whether the solutions offered by the organisation in question are in the B-to-B space or the B-to-C space, and then on the number of registered and active users/ customers deployed on the systems. The challenging part of the evaluation process is arriving at the projected value of the organisation for the future. With technologies going obsolete at the rate that they are, and customer or user preferences evolving rapidly, the shelf-life of products, services and solutions becomes harder and harder to estimate. Furthermore, continuous R&D and budget increases need to be set aside for all projects in order to maintain their currency and relevance to target audiences. All of these parameters need to be continually factored in while evaluating organisations.
Capital’s Importance Cash flows are a critical aspect that I.T. organisations’ CFOs need to actively look at and manage. Especially considering that unlike most other industries, the major component of cash outflows is staff salaries. The I.T. industry is by nature a very resource-heavy industry, since the end product being sold is “brain power”. The tradable
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Cash flows are a critical aspect that I.T. organisations’ CFOs need to actively look at and manage.
commodity is resource time, and of course the I.P. of the organization. Making sure that the cash flows remain healthy becomes an immense challenge for CFOs. Keeping a close watch on expenses, reserves, acquisition payouts, and fixed expenses while ensuring that the inflow of funds sufficiently covers the outflows is a fundamental task. In fact, it is these two factors that are considered in the evaluation of an organisation more so than any other, the I.P. value in itself, and the cash flow of the organisation. Once determined, these factors form the basis of the next steps of data to be mined and evaluated to arrive at the viability of the organisation, its true or perceived value, and lead to a “go or no-go” decision. Interestingly enough, the I.T. industry has today evolved and plugged itself into virtually all other businesses and industries, and revenue streams for I.T. organisations tend to follow some rather peculiar patterns. For example, an I.T. product-as-a-service organisation providing services to target audiences, might be receiving revenues, not from its target audiences, but third party advertisers or vested parties interested in statistical data for that particular industry. A CFO in the I.T. domain today needs to have the agility to understand the various revenue streams,
opportunities, monetisation avenues, and ensure that the organisation is moving in all possible directions to maximise the ROI from its associated technologies.
The Global IT Commute Given the global nature of the internet, and I.T. products, solutions and services being easily transported across various geographies, a global knowledge of taxation, trade restriction, and organisational set up is also a key ingredient in the knowledge-base of the I.T. CFO of today. Ensuring compliance and creating the most efficient structure while keeping in mind relevance to target audiences, geographies, and business interests further contributes to the final valuation and can be directly attributed to the contribution of the I.T. CFO. Suffice it to say that the CFO of an I.T. organisation, in today’s era plays a critical role not just in the day-to-day administrative operations, but also in terms of critical business decisions towards either merging or acquiring organisations, or creating attractive valuations for their own establishments at all times. One thing is certain, with the agility and rapid evolution of the I. T. space, the I.T. CFO will have to continually evolve and keep up with the demands of the industry.
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INTERVIEW
Al Masah
Chief Investing Al Masah Capital offers investment management expertise across a range of geographies and industries. Acquiring new business across these focuses has helped expansion, an aim central to Nrupaditya Singhdeo’s role as both Partner of the firm and CFO. Singhdeo shares with CFO Magazine how Al Masah is widening its gaze whilst impacting an ever larger sphere.
Who is Al Masah? Al Masah is close to 5 years old. Our CEO, Mr. Shailesh and quite a few members of the senior team were working for a large Kuwaiti investment firm. Shailesh and quite a few of us left our jobs and in 2009 once he formed Al Masah. We got our license to operate out of DIFC in August 2010. Our core team is located out of Dubai but we also have an office in Singapore, and a separate company by the name of Al Etihad Financial Advisors LLC out of Abu Dhabi. We also have a rep office to work on funds out of Luxembourg and out of the Cayman Islands. In terms of our activities, we do private equity funds, real estate funds, listed equity funds and we have a small advisory team and manage the discretionary portfolios of various investors. You’re a CFO which operates across many different localities in an investment world that is constantly expanding. How important is
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INTERVIEW
Al Masah
the CFO in Al Masah’s investment strategy? The role I play in terms of the importance within the whole group and the different verticals in which we are investing is that I not only act as the CFO of the group but am also the part of the different investment committees in terms of the asset class in which we invest in. A traditional CFO, let’s say 10 years ago, had the role of accounting. But for an investment company like ours, we focus more in the business role than being accounts oriented. Given my involvement in the different asset classes, I also get a sense of how the revenue pool of the parent entity is getting built up in terms of the fund raise that we do in different asset classes. Whether it is in line with the broader strategy that we put in place, be it the annual plan or a 3-year plan or a 5-year plan where we would like the company to head. This is one single thread after the CEO who has the knowledge of the all activities within the company. My part is to manage business and plan as to where the group should be heading in the longer run. How else do you supplement the CEO’s role? I also act as the Board
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Secretary, the Company Secretary in terms of conducting board meetings for the parent entity’s board. I sit in the board of most of the portfolio companies. In terms of the business lines, within the private equity business, we have a healthcare company, education company, lifestyle company and logistic company. Each of them are independent operating companies by themselves. So I have a role on the investment committee of the private equity of these vehicles plus I am on the Board of each representative committee. So there is a strategic angle within my role in terms of the investment decision making concerning all these different verticals plus how we can make the company grow not only the parent entity, or asset management entity but all the other group entities of which they have responsibility to invest and grow. How is Al Masah involved in Mergers & Acquisitions? The way we have developed the model of our business is that we would like to give a certain rate of return to our investors from the time they have invested in this company. So the best way forward we felt is to acquire existing businesses. One way to grow a business is to start from scratch and the
“If we want to acquire a company in the UAE, it has to be under an appropriate structure which meets the shareholding requirements of the place plus gives security to the investors.”
business by itself will evolve and mature as it starts giving in return to the investors. So the model which was most attractive to the investors involved in designing a formula or a model which would help the investors to get the return on a year to year basis, plus there is a security of the asset. So we felt that can only be achieved if we buy and aggregate operating assets which give the required rate of return as related to what the investors are looking for. So this specific model requires building the company only through M&A. So we have the healthcare platform created which has around 21 assets across four different geographies of the UAE, Kuwait, Oman and we are looking at certain assets in South East Asia. The same goes for the educational platform which has 19-20 assets across the UAE, Oman and Singapore. So all this build up has come through M&A strategies. We have a holding company, we have formed local entities to do the acquisitions. Let’s say, if we want to acquire a company in the UAE, it has to be under an appropriate structure which meets the shareholding requirements of the place plus gives security to the investors. So we have been able to devise appropriate structures
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INTERVIEW
Al Masah
“I am a part of a smaller committee which takes investment decisions. In that way I play a crucial role in the decision making process of each of the acquisitions that happens.”
to do these investments in the geographies wherever we are. For example, if we go to Singapore, it allows 100% foreign holding. We have adopted structures where we can directly own businesses there. Some of our businesses on occasion require a bit of involvement of the selling shareholder. So that in itself is taking acquisitions or significant controlling positions in those entities which again in itself is a model of acquiring business through M&A. As CFO, are you responsible for helping spotlight these assets that Al Masah wants to purchase? The entire investment team is responsible in spotting assets. They see a potential acquisition or partnership. In terms of my importance, I am a part of the smaller committee which can reject these opportunities. Having done more than 50 transactions in the last five years in this company, everything will not revolve around a single individual. It comes through our own network of friends, it can come through a network of relationships that we have with the investment banking committee who shows us the transactions, and it can come
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STAT FACTS
$300m PE funds raised by Al Masah since inception
through one of the assets that we have acquired. But I have a responsibility in terms of rejecting or accepting what needs to be done because I am a part of a smaller committee which takes investment decisions. In that way I play a crucial role in the decision making process of each of the acquisitions that happens. Where do you expect Al Mash to go with respect to sector? What’s next? We have created a fairly large portfolio of assets, and hope to continue ahead with the food, retail and hospitality sectors. We have an Indian restaurant in The Address Hotel serving French-Indian cuisine. We also will be starting another greenfield restaurant in Madinat Jumierah by the name of Café Rouge. We are in the process of acquiring a chain of fast food restaurants. There are other local cuisine restaurants which we are looking at and discussing with potential sellers. Food, hospitality, logistics and clean energy are the five business lines where we see our involvement. In terms of offering investment solutions to our investors, in addition to private equity it would be real estate, listed equity and pure advisory work.
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PERSONALITIES
Opinion: CIMA
EARNING A LIVING By Geetu Ahuja, Head of GCC at CIMA
Theoretically, there is nothing wrong with paying a salary that is relevant to the performance of a CFO or CEO. After all, if they do well, the company does well and their pockets do even better. But at what stage do the odds start stacking up? For CFOs in particular, the criteria seems to change more often and the scope of work appears to expand at a greater pace than many of the other roles. There is also the question of short-term incentives such as an annual bonus, where visionary insights are not realised until much further down the line and possibly not rewarded at all.
Performance related pay is a personal investment by a CFO and whether we like to acknowledge it or not, the desire to perform with commitment, professionalism and dedication is multiplied when there is a vested interest. 68
Since the implementation of payment through achievement, we have seen rules changed, laws rewritten and goalposts moved. Although still not perfect, stock and equity options appear to be a far more transparent and tangible form of remuneration, where ongoing success provides extra motivation. We see it more and more in businesses across the region, from large, established companies to SMEs and even startups, where a longer-term arrangement with the CFO can be crucial to success. Performance related pay is a personal investment by a CFO and whether we like to acknowledge it or not, the desire to perform with commitment, professionalism and dedication is multiplied when there is a vested interest. After all, that’s the whole point. It’s not rocket science and for the most part, it seems to work. A study by Hewitt, one of the world’s
largest organisations devoted exclusively to human capital, showed some fairly stark findings in their report “Best Employers in Asia”. Among the top companies – not only the most admired but also the most profitable – more than 75% use schemes that reward high performers and give them a chance to share in the company’s success. As the profitability and performance of the remaining companies goes further down the rankings, the proportion that use performance related pay goes down with it, the conclusions, say Hewitt, are obvious: “When you link pay to performance, you get better results.” To be honest, this may be a slightly simplistic statement, but there are many board members who will say that their company has grown and their market has expanded since the corporate carrot was dangled. The problem we face now is who decides whether the CFO performed well – and if so, how well?
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