Investcorp announces successful first exit from Gulf Opportunity Fund

13 Feb 2012

Investcorp, the alternative investments specialist, today announced the first exit from its Gulf Opportunity Fund I. The Firm also reported its results for the six months ended December 31, 2011 (H1 FY12).

Investcorp announced that a definitive agreement has been signed for a sale of Redington International Holdings Ltd, the leading distributor of IT and telecom products in the Middle East, Africa and Turkey, in which the Investcorp Gulf Opportunity Fund I invested $65 million in November 2008 for a 26% equity stake. The sale will generate gross proceeds of $114.8 million (including $2.1 million in dividends already received) representing a gross $49.8 million capital gain, net IRR of 17% and 1.7 multiple of our investors’ equity investment. The buyer is the Bombay Stock Exchange-listed parent company Redington India, which acquired the shares to regain complete control and ownership of its subsidiary.

Half Year Results:

Fee income from Investcorp’s client business activities increased by 14% to $82.0 million and corporate investment asset-based income grew by 90% to $65.4 million compared to H1 FY11. However, asset-based income overall was impacted by negative returns on hedge funds with the hedge fund industry worldwide experiencing drawdowns due to the turbulence caused by the Eurozone crisis. As a result, Investcorp’s net income for the period was $5.3 million, compared with $56.2 million in the same period of the previous fiscal year.

Investcorp’s client business in the Gulf continued to build on its momentum of the last three years following the 2008 crisis. In this six month period, Investcorp raised $735 million from investors, up 67% from the $440 million raised in the first half of last fiscal year. Meanwhile, the period also saw healthy profit distributions back to investors, with $412 million being returned, following a distribution of $405 million in the previous first half period.

Nemir A. Kirdar, Executive Chairman & CEO, commented: “These results show strong underlying progress, clearly demonstrating that Gulf investors continue to favor alternative investment firms with a long track record of performance and whose expertise and commitment they trust. This period has seen our headline results inevitably impacted by the Eurozone debt crisis which dramatically worsened market conditions in the short-term for all asset classes, including the hedge fund industry.

“However, Investcorp’s business has ridden out this event during the first half and I am extremely encouraged by the strong exits we have made and by the growth in our fundraising activities. Realizations and new investment from clients form a virtuous circle in alternative investments, and our performance on these key metrics shows we are on track as we move ahead to maximize the capacity inherent in Investcorp?s brand in the Gulf.”

Highlights for the period:

In corporate investment we exited Accuity Inc, a former subsidiary of SourceMedia Inc. In real estate we arranged the highly profitable sale of W South Beach debt securities, which closed in January 2012. Total realization proceeds to Investcorp and its clients were $412 million.
Investcorp successfully placed three deals in this half year, having now fully placed ten deals in the post-crisis period since the beginning of FY10.
We took a particularly disciplined approach towards investment activity during the first half of FY12, against the background of deterioration in the global economy. In corporate investment we invested $174 million in new investments, including the acquisition of leading US kitchenware retailer Sur La Table and the acquisition, by the Investcorp Technology Partners III Fund, of a majority stake in leading video management provider Thought Equity Motion.
We deployed $95 million in six new real estate investments, three of which were placed with clients in a Sharia-compliant portfolio, US Diversified Properties X Portfolio, and a fourth which will be placed in a future portfolio. We also acquired two debt investments.
Despite economic pressures, aggregate EBITDA from Investcorp’s US and European corporate investment portfolio at December 31, 2011, was up by 10% over the December 31, 2010 figure.
Operating expenses fell by 23% to $64.0 million, due to reduced fixed operating expenses and lower variable compensation accruals in line with lower net income for the period.
Client assets under management fell slightly to $8.7 billion, with new fundraising offset by reductions in assets under management from successful realization activity and negative hedge funds performance.
Total liquidity remains strong at $1.0 billion.