CAIRO: "It's been a very long road, said Actis Investment Principal Sherif Elkholy, who worked tirelessly for two years to secure a $48.5 million investment at one of Egypt's top food production firms, Mo'men. Elkholy and a growing number of players in the private equity market are not only in the business of selling their credentials to clients, but are reshaping the mindset of an economy unaccustomed to outside investment. Describing his first meeting nearly two years ago with company chairman Mohammad Mo'men, Elkholy said, "I was received with caution. Private equity is not a very well-known or appreciated concept in the country, especially not among family businesses. "It's been a process of building trust, Elkholy continued. "The Egyptian market is very much a trust-based market. You build trust with the other party and you find common ground to build a proper rapport. If you do that, the rest then becomes easy. In an interview with Daily News Egypt, Elkholy marveled at the progress the private equity market has made since his arrival to it. Beginning at EFG-Hermes as a financial analyst, Elkholy noted the general lack of appetite for investment in the region. The change, he said, began in 2003 and 2004 because of an acceleration of the global economy after the September 11, 2001 attacks, a renewed interest in emerging markets after the decline of east Asia in the late 1990s, a liquidity boom based on skyrocketing oil prices, and a liberalization of Egyptian fiscal policy. After getting his master's degree from the University of London and working briefly at HSBC, Elkholy decided in 2004 to find himself a front row seat for the explosion of investment just beginning to pour into Egypt. "I think I always had a specific interest in emerging markets, said Elkholy, "and I wanted to join an international firm.that would provide me with the exposure and the competition at the international level. And do he joined Actis, a private equity investor in emerging markets, manages $6.8 billion worth of investments through its 13 offices in Africa, Asia and Latin America. After two years at the Egypt branch of the firm, Elkholy decided that Mo'men was a prime candidate for investment. "I always sort of believed, he said, "that the consumer sector in Egypt was a very promising one due to the demographics of the country and the changing social patterns, and the people becoming more and more aware of brand equity. "Mo'men is a household brand name, he continued, discussing his attraction to the company. "Everyone knows it. It's the first mover. It's been around 20 years. It opened shop when there were practically no other sandwich shops around. His initial meeting with Mohammad Mo'men took place in the summer of 2006, and though it took a while for him to earn the trust of this tightly run family firm, the two sides began making real strides towards a deal by the end of 2006. On January 15, 2008, the two sides signed a binding memorandum of understanding and then finalized the deal last month. With a $48.5 million investment from Actis, Mo'men plans to spread the extra capital around to all its business ventures, which include food processing, the restaurant chains, importing and distribution operations, and a franchising business. Plans include increasing the size of the restaurant chain, providing capacity improvement for the food processing, increasing quality and branding levels, and expansion to the Gulf. Mo'men already has significant operations in Libya and Sudan. Elkholy noted that Mo'men also plans to launch other unrelated ventures but said he would not discuss them privately until early 2009. Asked about how long Actis plans to hold its investment in Mo'men, Elkholy replied, "Actis is typically a medium- to long-term investor. We take a three- to seven-year holding period depending on a case-by-case basis to realize our target returns. Despite the turbulent economy of late, Elkholy remains upbeat about future prospects. "I still think the economic environment is very positive, he said, noting, however, that "double digit inflation and the social repercussions that have stemmed from it are worrying. Asked how a downturn in the economy had affected the private equity business, Elkholy said, "I think what private equity firms have started to do is give more focus to downside protection.because it's very valuable now in these current market conditions. Furthermore, he noted, an influx of liquidity from the Gulf is continuing to spur the Egyptian economy even when some indicators appear negative. This influx of liquidity is significant since, Elkholy noted, Egypt is "still very much about capital creation rather than capital rationing. As private equity investments slowly become accepted practice in Egypt, the next area for growth may be in the buyout sector which, Elkholy said, is still conducted by a few niche players. Wherever the private equity market turns, Actis seems well positioned to adapt and thrive. To read the other stories in our bi-monthly special focus on Egypt s capital market, click here: http://www.thedailynewsegypt.com/article.aspx?ArticleID=15717 http://www.thedailynewsegypt.com/article.aspx?ArticleID=15715
