IN­TERCON­TI­NEN­TAL JOR­DAN WINS CLEF D’OR

Hospitality News Middle East - - NEWS - Ihg.com

Pri­vate eq­uity (PE) is in­creas­ingly be­ing ac­cepted as an al­ter­na­tive to tra­di­tional bank fi­nanc­ing or po­ten­tial ini­tial pub­lic of­fer­ings (IPOS) in the Mid­dle East, with com­pa­nies turn­ing to these firms for growth cap­i­tal or to mon­e­tize their stakes in their busi­nesses. Re­gional merger and ac­qui­si­tion (M&A) ac­tiv­ity slowed in 2016 on the back of low oil prices and mar­ket fluc­tu­a­tions. How­ever, it has main­tained mo­men­tum in the F&B sec­tor across the broader MENA re­gion.

F&B on firm foot­ing

While in­vest­ments led by banks in the MENA re­gion have been slow to re­cover to pre-re­ces­sion lev­els, F&B is one of a few key in­dus­tries that has shown more prom­ise, par­tic­u­larly within the GCC coun­tries. In 2014, F&B ranked third in terms of value per in­vest­ment among in­dus­tries in MENA. By 2016, F&B had cat­a­pulted to sec­ond in av­er­age in­vest­ment size in the re­gion.

M&AS surge in 2016

M&A deals rock­eted in MENA dur­ing the sec­ond half of 2016 to USD 30.5 bil­lion, up al­most three­fold on the value of those made in the first six months of the year. The ac­tiv­ity was largely driven by megadeals, in­clud­ing four trans­ac­tions above USD 1 bil­lion. In March, Ama­zon agreed to pur­chase the Dubai-based Souq. com, a deal de­scribed by Gold­man Sachs ad­vi­sors as “the big­gest ever tech­nol­ogy M&A trans­ac­tion in the Arab world”. The ar­rival of Ama­zon in the MENA re­gion is likely to spur both the dig­i­ti­za­tion of re­tail and the over­all econ­omy. The com­pany will have a ma­jor im­pact on restau­rants and food­ser­vice in the GCC. Though cur­rently small when com­pared to the global av­er­age, re­gional e-com­merce is seen as hav­ing high growth po­ten­tial. In­vestors have al­ready taken note of the trend to­wards dig­i­tal. In April, Gulf Cap­i­tal, one of the largest al­ter­na­tive in­vest­ment firms in the re­gion, said it had in­vested over USD 135 mil­lion in tech­nol­ogy and e-com­merce across the GCC. CEO Karim El Solh said the firm fore­casts a sub­stan­tial in­crease in tech­nol­ogy in­vest­ments in the GCC and sig­nif­i­cant re­turns for the early back­ers: “The dig­i­tal econ­omy is hav­ing a trans­for­ma­tional im­pact on our lives and economies, and ecom­merce is at the heart of it,” he noted. “It is per­haps the top mega trend that will have a pro­found im­pact on ev­ery busi­ness in the GCC in the com­ing years.”

The big­gest F&B deals in re­cent past

The MENA re­gion saw 15 PE deals be­tween 2010 and 2015, 10 of which were F&B group-in­volved and six of which were con­cen­trated in the UAE.

Quick ser­vice restau­rant (QSR) brands were among the most pop­u­lar in­vest­ments, in­clud­ing: Car­lyle Group’s ac­qui­si­tion of a 42 per­cent stake in Saudi Ala­mar Foods, the re­gion’s mas­ter fran­chisee of Domino’s Pizza and Wendy’s; and Tharawat In­vest­ment House’s ac­qui­si­tion of a 49 per­cent stake in Hun­gry Bunny, a Saudi fast-food chain with out­lets across the GCC. Global Cap­i­tal Man­age­ment, an arm of in­vest­ment group Global In­vest­ment House, fully ac­quired the Bahrain-based QSR man­ager Yum Yum Tree Food Court in 2016, which cur­rently op­er­ates across Bahrain, the UAE, Qatar and the KSA. The com­pany op­er­ates more than 20 in­ter­na­tional and re­gional brands in­clud­ing: Vanel­lis; Sub­way (in Bahrain only); Teryaki, Pad Thai; and Al Man­gal. Al­ghanim In­dus­tries and The Wendy’s Com­pany had signed a mas­ter fran­chise agree­ment aimed at ex­pand­ing the Wendy’s brand through­out MENA. Al­ghanim ac­quired the rights to de­velop Wendy's from the Saudi out­fit, Ala­mar Foods. As part of the deal, Al­ghanim ac­quired all op­er­a­tional out­lets in the UAE, with plans to open ad­di­tional stores over the next 10 years. The com­pany ac­quired Costa Cof­fee Kuwait in 2013. Fajr Cap­i­tal, a ma­jor player in the Mid­dle East PE in­vest­ment, ac­quired Uae-based Cravia Group in May 2016, which op­er­ates some of the most rec­og­niz­able F&B fran­chises across the MENA re­gion. These in­clude: Cinnabon; Carvel ice cream; Five Guys;

The re­gion’s dig­i­tal econ­omy is set to dou­ble over the next three years, with the GCC’S e-com­merce sales ex­pected to reach USD 41.5 bil­lion by 2020

and Zaatar w Zeit. Mean­while, Gulf Cap­i­tal took ad­van­tage of F&B po­ten­tial in the KSA through its ac­qui­si­tion of Multibrands Trad­ing Co, an in­dus­try leader with prod­ucts serv­ing KSA through fran­chised chains, ho­tels, cafes, bak­eries and restau­rants. Early in 2016, NBK Cap­i­tal Part­ners (NBKCP) in­vested in Amo Hamza, a seafood ca­sual din­ing chain in KSA. With six ad­di­tional in­vest­ments in the re­gion, in­clud­ing Shake­speare & Com­pany and Al Faysal Bak­ery, NBKCP is an im­por­tant player in the GCC/MENA re­gion’s F&B sec­tor.

Di­ver­si­fi­ca­tion bodes well for the re­gion

There is clearly re­gional de­mand for the ex­pan­sion of both home­grown and in­ter­na­tional brands. Still, while op­ti­mistic, in­vestors re­main cau­tious, due to macroe­co­nomic con­di­tions. As oil prices sta­bi­lize, PE in the re­gion is also ex­pected to pick up. Early stage ven­ture cap­i­tal (VC) style deals with tech­nol­ogy star­tups will at­tract in­ter­na­tional and lo­cal in­ter­est, help­ing to in­crease M&A ac­tiv­ity in the re­gion. Coun­tries and cities through­out MENA are play­ing their part, tar­get­ing eco­nomic di­ver­si­fi­ca­tion through the devel­op­ment of na­tional vi­sion plans. Dubai im­ple­mented an In­dus­trial Strat­egy 2030, con­tain­ing ini­tia­tives not only in F&B, but also in aerospace, mar­itime, phar­ma­ceu­ti­cals and med­i­cal equip­ment, among oth­ers. Through re­cent in­vest­ments in con­struc­tion and tourism, the re­gion hopes to lev­er­age its in­fra­struc­ture and air­ports to serve grow­ing de­mand for food, specif­i­cally halal prod­ucts. In KSA, a Na­tional Trans­for­ma­tion Plan will be im­ple­mented through 2030. With so many plans in the off­ing, the re­gion is widely touted as a growth op­por­tu­nity, in­clud­ing the F&B mar­ket, which is pro­jected to ex­pand by 6.5 per­cent an­nu­ally over the next four years. Given the num­ber of re­gional in­cu­ba­tors ac­cel­er­at­ing, the GCC’S VC in­dus­try will con­tinue to grow.

What the fu­ture holds

The GCC’S food­ser­vice in­dus­try is set to grow at a com­pound an­nual growth rate of al­most seven per­cent to USD 24.5 bil­lion by 2018, up from an es­ti­mated USD 18.8 bil­lion in 2014. QSR play­ers rep­re­sent the largest seg­ment, at just over 58 per­cent. Still lag­ging, but with much po­ten­tial, the full-ser­vice seg­ment stands at just over 31 per­cent.

Ma­jor ex­pan­sion is ex­pected in re­tail e-com­merce, a trend that is al­ready be­gin­ning to im­pact restau­rants. The re­gion’s dig­i­tal econ­omy is set to dou­ble over the next three years, with the GCC’S e-com­merce sales ex­pected to reach USD 41.5 bil­lion by 2020. Con­se­quently, de­mand for food de­liv­ery and mo­bile pay­ments will def­i­nitely in­crease. As economies in the re­gion di­ver­sify and house­hold in­come lev­els rise, the F&B in­dus­try stands to ben­e­fit, es­pe­cially in ca­sual din­ing and fast food. Evolv­ing de­mo­graph­ics, in­clud­ing younger pop­u­la­tions and work­ing ex­pats, will also fuel F&B growth in the re­gion. Tourism will drive fur­ther growth. The World Travel & Tourism Coun­cil ex­pects travel to the re­gion to grow at an an­nual rate of 7.8 per­cent over the next seven years. Based on re­cent in­vest­ment ac­tiv­ity in the F&B sec­tor, cou­pled with the need for ma­jor part­ner­ships be­tween in­ter­na­tional brands seek­ing new mar­kets and na­tional com­pa­nies look­ing for new ven­tures, the MENA re­gion will re­main a hot­bed of M&A ac­tiv­ity.

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