Liquidity crisis helps set new strategies to run businesses

The shortage of liquidity caused by the global crisis has created an opportunity for companies able to develop innovative ways of raising capital for businesses, acquisitions and consolidations. And Dubai-based Capital Street Partners being one of them. The corporate advisory firm focuses on small- and medium-sized enterprises (SMEs) and markets UAE businesses around the world – through its online platform. Managing Director Steve Austin McIntire said Dubai, with its favourable demographics, attractive infrastructure and the low cost of setting up a venture, offers a compelling investment proposition. The company, which commenced operations last year, is seeing a significant rise in business. The second quarter, in particular, had seen positive effects from changes in the macro environment. "There has been a refreshing change in the second quarter," McIntire told Emirates Business. "As things are more stable, the number of clients we had has increased by more than double from the first quarter to the second. The numbers of sellers and buyers have increased, unlike in the first quarter when there was not much activity." The region has not been immune to the global economic crisis. Does Dubai still present a compelling investment proposition? Yes, of course. That is why we are here in the first place. If you go beyond next year, when you will see lots of adjustments in property values, banking, etc, there will be almost guaranteed growth. The population will grow, GDP growth is positive and very few places in the world can boast of this sort of growth. It doesn't exist in developed countries. At the end of the day, it's a growing region. You recently completed a mezzanine growth financing arrangement for Beauty Contact Incorporated (BCI). What is the size of the deal and what role does Capital Street play? We proposed an innovative mezzanine investment structure that worked well for both the investors and BCI's shareholders. BCI will utilise the proceeds to support the global launch of its product, followed by several other products. We cannot disclose the exact size of the deal but apart from arranging the first stage of financing, we'll continue to work with them in the second stage as well. The benefit of this structure for investors is that it provides a base return with some participation in the growth and success of the business. The benefit for current shareholders is that it is far less dilutive than common equity. When you make finance available to enterprises, who are your target investors? Our focus is regional private equity, large family groups and local businesses. For financing, we approach commercial banks too, though not on a very large scale. Has there been any noticeable change in terms of the flow of funds from investors? Yes, we have started to see some interest from companies in Kuwait, Saudi Arabia, Iran and India. This is not what we saw in the first quarter. The investors we have been in touch within other GCC countries are serious buyers even in sectors that are depressed, such as construction. It is a refreshing change that has happened in the second quarter. As things are more stable, the number of clients we had has increased by more than double from the first quarter to the second quarter. The numbers of sellers and buyers have increased, unlike in the first quarter when there was not much activity. Which sectors are you seeing inflows from? We are seeing inflows from various quarters. We are in touch with major private equity groups and quite a few have restructured their portfolio companies. They were adopting a wait-and-watch policy but now they are definitely looking to deploy their funds towards sectors that can offer them a good price. What kind of return has investment in business ventures generated this year? Investor returns come from two sources – current cash-flow yield and the growth of the business. Buying a small to mid-sized business in the UAE achieves returns from both sources. With our type of transactions very few fall under 20 per cent. In most cases, the return has been in the range of 25 to 30 per cent and sometimes even higher. It depends on how successful the company is. Mezzanine deals produce higher returns for investors of 25 to 35 per cent. Being sector-specific, we are finding real value in service sectors. Retail-based opportunities are attractive as people are looking at the UAE as a growth market. Manufacturing is also attractive but that is because the sector offers low prices and attractive valuations. Buying a business in Dubai is likely to be one of the best investments an entrepreneur can make. Is the reduction in property prices here being viewed as an opportunity by investors in other regions? Looking beyond the current gloom, many businesses will benefit from the decline in Dubai property prices. In fact most businesses not tied directly to construction will benefit due to the fact, as various reports have shown, that 90,000 residential un