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Talks for $500 million Gulf Marine sale collapse
Financing issues, valuation cause of stalled talks – sources; CEO says still open to sale but acknowledges impediments; Two bidders were shortlisted from dozen parties for talks; Gulf Capital CEO says may look at IPO for GMS in 2 years
June 10, 2012 5:50 by Reuters
A potential $500 million sale of a 79-percent stake in Gulf Marine Services(GMS) by its Abu Dhabi-based private equity owner has collapsed due to financing issues and differences over valuation, three sources said.
They said that talks between seller Gulf Capital, a regional private equity firm with around $1 billion in assets and two bidders shortlisted from over a dozen suitors had ended, in a fresh blow to private equity exits in the region.
“There was a buy-sell price gap and the buyers could not get the financing sorted out. American and European investors were the final bidders but talks are now back in ground zero,” said one of the sources.
Gulf Capital’s Chief Executive Karim El Solh confirmed that there were impediments to a sale but added that the firm had not given up on its disposal plans.
“The size and profitability of GMS became so big that many of the interested buyers cannot afford it. We’re still open for a sale process,” he told Reuters on Sunday.
The private equity firm is also exploring a potential initial public offering for Gulf Marine in a major stock market like London or Singapore in two years’ time, said El Solh.
“Our third option is to do a leveraged recapitalisation so we borrow against the company and distribute dividends to shareholders. That’s one step leading to a blockbuster global IPO,” said El Solh.
El Solh had told Reuters in an interview in April that the company expected to raise more than $500 million from the sale of its GMS stake before the end of June.
The failed discussions underline the difficulties companies face in raising funds for acquisitions as banks across Europe and the United States retrench due to the euro zone debt crisis and the prospect of increased capital requirements.
Credit Suisse, which is also an investor in Gulf Capital’s fund, was the advisor on the sale, seen as a litmus test for more private equity exits from the region.
J.P. Morgan Chase was brought in at a later stage by Gulf Capital to arrange financing and several local lenders were also approached but in vain, one of the sources said.
Private equity funds in the Middle East are under pressure to exit investments and provide returns to their investors who piled in money to the region during the boom years of 2004-2007.
Some 218 investments were made by regional private equity funds between 2004 and 2009, of which the funds have only exited 14, according to a 2011 report by the Wharton School of the University of Pennsylvania and Saudi private equity firm Amwal AlKhaleej.
Gulf Capital had acquired the stake in GMS in 2007. GMS’ clients include prominent oil firms such as Saudi Aramco, Qatar Petroleum and Abu Dhabi National Oil Company.
GMS’s EBITDA (earnings before interest, tax, depreciation and amortisation) has grown from $10 million in 2007 to $100 million last year, according to El Solh.
Gulf Capital owns stake in firms such as healthcare chain Techno Scan and water engineering firm Metito Holdings, according to its website.
Last year, the company and Amwal AlKhaleej sold their stakes in Maritime Industrial Services in a $336 million deal to Lamprell Plc in one of the rare private equity exits from the region.
Regional private equity firm Abraaj Capital also sold its stake in Turkish hospital group Acibadem to Malaysia’s state-linked investor fund Khazanah Nasional.