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Shared Interests, Shared Returns

As the pace of business in the Middle East and North Africa accelerates, family businesses are looking to raise funds, sell out, restructure or offload non-core assets. Deregulation is opening new opportunities for greenfield investment. Governments are increasingly willing to divest assets in privatization sales. The list goes on.

Going forward, this means a growing number of private equity deals will originate from situations in which trust, transparency and good corporate governance are vital. As origination streams diversify beyond the usual sources, savvy industry players will embrace the reality that the full alignment of interests of all parties is becoming the key to sustainable growth.

This list of concerned parties is much longer than the traditional relationship of private equity firm to portfolio company. To drive growth, we must instead take into consideration the interests of the firms, their limited partners, portfolio companies, employees, communities and even the economies in which PE firms do business.

In this scenario, the full alignment of interests makes the difference between being a good firm and a truly great one.

Good private equity firms accommodate and guard the interests of their limited partners. Great private equity firms align their interests with those of their limited partners by co-investing significant sums alongside them, sharing equally in risks and returns.

Good private equity firms ensure portfolio companies have viable business plans and keep a watchful eye on performance. Great private equity firms help talented portfolio company management teams develop blueprints that align the companies’ operational and strategic plans.

Good private equity firms benchmark compensation packages at the firm and at portfolio companies against others in the industry. Great private equity firms build compensation packages at both levels that include stock options and employee stock ownership programs, thereby ensuring staff and corporate interests are fully aligned proportional to their contributions to value creation.

Good private equity firms ensure they meet minimum standards of good governance. Great private equity firms separate management from board-level functions, thereby ensuring everyone’s interests are aligned, in harmony and protected.

Good private equity firms understand that corporate social responsibility programs are an expected part of doing business. Great private equity firms align their giving with the community’s real needs, seeing community development initiatives as a way to make positive contributions to the environments in which they do business.

And, finally, good private equity firms work to manage relations with government ministries and agencies. Great private equity firms, on the other hand, go a step further, treating governments as true partners with a shared interest in promoting economic growth and development — creating value for citizens, the state and companies alike.

Dr. Ahmed Heikal is chairman and co-founder of Citadel Capital, the leading private equity firm in the Middle East and North Africa with investments of more than US$ 8.3 billion under control. The firm is based in Cairo, Egypt.