Challenges Facing Family Businesses

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• Challenges Facing Family Businesses

Faisal Bin Juma BelhoulExecutive Vice
Chairman Belhoul Group Holdings LLC Founder
Managing PartnerIthmar Capital LLC
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Family Businesses Internationally vs. the GCC
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The Family Business

• Internationally and in the GCC, more than 70 of
  businesses are family owned, however, one needs
  to question the similarities and the differences
  
• Characteristics of family business
  Internationally
• Family owns more than 50
• More than one generation is involved in the
  running of the business
• Business tends to have a core focus
• Family involved in day to day operations
• Examples
• Kikkoman Japanese - founded in 1630, making
  soy sauce, today it is the largest producer of
  soy sauce in the world
• C. Hoarse Co UK - founded in 1672, this is
  the last survivor of the English private deposit
  bank, now run by 11th generation
• William Clarke Sons Ireland - founded in
  1739, manufacturers of linen today 9th
  generation operated business
• Villeroy Bosch Germany founded in 1748,
  manufacturing porcelain etc, - still run by
  family today

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The Family Business

• Regional (GCC) family businesses tend to differ
  from international family businesses in that
• Characteristics of regional family businesses
• Businesses only a few decades old and often
  still in hands of first generation
• Vast number of investment opportunities
  available, so family diversifies
• Availability of capital and opportunities
  encourages investment outside of core specialty
• Family generally not involved in the day to day
  running of the businesses it owns / has invested
  in
• Family selects most suitable manager to run
  their businesses
• Family acts more as asset manager than
  operator

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The Family Office

• The definition of family office internationally
  is that of an organization developed to manage
  and support the financial needs and resources of
  a family group, often after the sale of a family
  business or realisation of significant liquidity
  
• The family office typically covers
• Business management
• Wealth organization
• Investments
• Asset allocation
• Trusteeships
• Family management, etc
• If we compare this definition to the way in which
  regional family businesses operate, then these
  businesses act more as Family Offices in the
  international sense

Source Moore Stephens
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A Case Study Belhoul Family
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The Belhoul Family Office

• In operation since 1969
• Set up by Dr Juma Khalfan Belhoul, an
  internationally educated doctor
• Saw potential and opportunity for local
  investment, but was committed to government work
  
• Identified a suitable manager ex Boots UK,
  through his regional international network
• Commenced by seeding a medical equipment trading
  company
• Quickly evolved and expanded into other
  industries, including healthcare, education,
  distribution, manufacturing and retail,
  construction, real estate, etc.
• Diversified portfolio generated many successes
  and some failures

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Re-structuring of Family Office

• In the mid 90s, the family identified the need
  to enhance management resources to best manage
  diversified asset base
• Agreed on need to build platform to move to next
  level
• Identified appetite for certain asset classes
  within family group
• Research undertaken to identify most appropriate
  vehicle to manage these holdings
• Belhoul Group Holdings (BGH) formed as a regional
  asset management company

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Belhoul Group Holdings
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Belhoul Group Holdings
BGH was formed with the aim of managing a
diversified asset base
VISION
To be a leading diversified asset management
company investing in the GCC region with full
adherence to Islamic practices and humanitarian
principles
MISSION
To generate superior risk-adjusted returns in its
GCC investments by devising an asset allocation
strategy through engaging and monitoring the best
specialized managers for each discipline
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Formation and Role of Family Board

• Family Board created
• Role of Board - to elect Chairman and Vice
  Chairman
• Role of Chairman and Vice Chairman - to display
  the asset classes of interest and recommend an
  allocation for these classes
• Chairman and Vice Chairman appoint and monitor
  most suitable institutions to manage these
  assets
• Chairman and Vice Chairman report to family
  members on semi-annual basis

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Asset Allocation
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Criteria for the 3 Asset Classes

• Real Estate
• Privately owned in the UAE
• 100 ownership
• Revenue generating
• Minimum targeted return of 8 IRR.

• Public Equity
• Publicly listed companies on the GCC stock
  exchanges
• Minimum targeted return of 15 IRR.

• Private Equity
• Direct investments in unquoted private business
  based in UAE
• Across various stages from Startup/ Early stage
  to Expansion
• Minimum ownership of 25 up to 100.
• Minimum targeted return of 20 IRR

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BGH Regional Private Equity Portfolio
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Selection of Managers

• BGH recognized the need to appoint institutional
  managers for each asset class, based on track
  record and performance
• Research and selection undertaken to find most
  suitable managers
• Faisal Belhoul founds Ithmar Capital
• Ithmar Capital is a local private equity
  management company, comprised of experienced
  regional and international private equity
  professionals
• Ithmar Capital gets mandate to manage BGH
  portfolio of private equity investments, after
  incorporating the companies in a fund structure
  by the name Ithmar Fund I

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Ithmar Capital
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Ithmar Capital
VISION
To become the PREFERRED Regional Private Equity
House for proprietary deal flow and investors
MISSION

• To generate superior returns for investors by
  investing in private businesses located in the
  Middle East and North Africa with a primary focus
  on the GCC through
• A rigorous and disciplined investment process
• A hands-on approach to growing the value of
  portfolio companies
• A continuous and proactive approach to
  identifying the most attractive exit option

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Market Opportunity
AS A RESULT
Institutional Private Equity money under
management has increased at a GACR of 41 over
the past 5 years to reach almost 1billion today.
Hypothesis
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Ithmar Capital seeking to raise Fund II Early 2005
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Investment Process
POST ACQUISITION
DEAL SOURCING
SCREENING
SELECTING
PROCESS
EXIT

• Availability of attractive exit route
• Divestment will yield required rate of return

• Identify Attractive business
• Establish willingness of owner to divest

• NDA Agreement
• Exclusivity Agreement
• Initial Due diligence
• Agree Term sheet (Valuation, Major Terms)

• Full Due diligence
• Financial and Accounting
• Operational
• People and organization
• Legal
• Structure Transaction
• Agree final price and payment terms

• Board representation
• Regular reporting
• Hands-on involvement

MILE STONES

• Dont shop it around
• Build reputation as a trusted source

• Give management operational Space and Stake

• Strong Network and relationship
• Build reputation as trusted investor

• Negotiate controlling stake and rights

KEY SUCCESS FACTORS

• Quality and transparency of corporate data

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Why Ithmar Capital?

• Cohesive team from the region with extensive
  experience and deep cultural understanding
• Strong regional network, with access to decision
  makers sed and value driven, with a broad range
  of transactional, operational, financial and
  investment skills
• Hands-on commercial skills experience in
  successfully running both large and small
  businesses
• Highest professional and ethical standards
• Foster non-hierarchical organisational structure,
  encouraging creativity, mutual accountability and
  self governance

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Hands-on Approach to Adding Value

• Strategic guidance and ensuring proper corporate
  governance
• Leveraging regional understanding and relations
  to accelerate the growth of portfolio companies
• Identifying complementary add-on acquisitions
  and/or divestitures
• Creating economies of scale by combining the
  purchasing power of portfolio companies
• Optimising capital structure of each portfolio
  company
• Assisting portfolio companies in attracting
  strong management
• Structuring and implementing employees
  incentives and compensation plans, hence
  motivating management and aligning interests

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• THANK YOU

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• Challenges Facing Family Businesses

Faisal Bin Juma BelhoulExecutive Vice
Chairman Belhoul Group Holdings LLC Founder
Managing PartnerIthmar Capital LLC