Perhaps the most significant challenge faced by any family-run business is longevity. There is a strong body of evidence to suggest that the founding family should relinquish control of a company within three generations; a mere four percent of firms survive into the ownership of the fourth generation, according to several academic studies on the subject.
The transaction is the largest private equity deal in the MENA region so far this year
Long-term survival was certainly one of the factors that prompted Mohammed Alsubeaei & Sons Investments Company (MASIC) – one of Saudi Arabia’s most prominent firms – to change its managerial model. The Riyadh-based company manages assets including equities and private equity funds, and generates returns through direct investments in a range of sectors including real estate. “Three years ago we decided to institutionalise, and move towards a more professional management structure,” said Ihsan Abbas Bafakih, MASIC’s CEO.
“We started implementing the changes, putting in place new legal structures that separate family from day-to-day management. So there are family members on the board of directors and the executive committee, and they can continue to be a great inspiration and generate ideas that contribute to the overall success of the firm through a best-practice structure that carries on their legacy.
“The transition has been difficult at times but the positive aspects make it worthwhile. Other companies respect you more, banks look at us more favourably when considering lending to us, but I think for us the main incentive was longevity, ensuring our business is sustainable in the long term.”
Far-reaching deals
Impressive growth, domestically and internationally, suggest it was the right move for MASIC, as do the recent nominations for two World Finance awards, in the categories of Best Family Owned Investment Company and Best Private Equity House in the GCC. MASIC’s assets under management have doubled in the last three years, and its overseas investment portfolio has grown exponentially – with investments spread across the board in sectors such as financial services, real estate, agricultural (aquaculture), manufacturing, industrial and retail.
In recent years, the firm has been involved in some landmark deals, including the redevelopment of London’s iconic King’s Reach Tower (now known as the South Bank Tower) by providing £145m of funding through the largest sharia-compliant mezzanine facility of 2012. And just this month, MASIC’s Fajr Capital led a consortium that announced it is buying the Dubai-based oilfield services company National Petroleum Services. The transaction is the largest private equity deal in the MENA region so far this year.
Despite its ascent into the ranks as one of the kingdom’s most respected companies, MASIC refuses to lose touch with its family roots and the principals of its founder, Sheikh Mohammed bin Ibrahim Al Subeaei. An astute but modest businessman, Sheikh Mohammed instilled a strong sense of social responsibility in the company, and these ethics and values have been transferred to his sons, and instilled in the current members of the management.
The Mohammed & Abdullah Al Subeaei Charity Foundation epitomises this, which supports humanitarian, religious, cultural and social projects in the kingdom over the last 10 years since it inception. “Our founder was well known as a very ethical man,” said Bafakih. “He wanted his company to behave ethically and demonstrate a strong sense of social responsibility, and that governs how we do business today.” Other examples of corporate social responsibility include the MASIC Annual Forum – now in its sixth year – which helps attract investment to various projects that underpin the development of the country. Another important founding principal, and one that guides all MASIC’s investment decisions, is that of sharia-compliance.
“When companies come to talk to us, sometimes they have to go back and do something differently before we’ll invest, so that’s forcing what we see as positive change on certain other firms, and in the long term, throughout the business environment,” Bafakih explained. To this end, MASIC also sponsors Harvard University’s Islamic Finance Project, which conducts research into the theory and practice of sharia-compliant finance.
The Al Subeaei family business started life as a trading house founded in Mecca in 1933 by brothers Mohammed and Abdullah Ibrahim Al Subeaei. The family group of companies grew with the fortunes of Saudi Arabia following WWII, and the founding of The Al Subeaei Currency Exchange Company marked its formal entry into the financial services business.
MASIC is fiercely proud of its Saudi heritage and maintains a strong bias toward investing in domestic markets (see Fig. 1). Among MASIC’s key investment assets are Alargan Projects, Bank AlBilad and Jadwa Investment, the biggest independent CMA-licensed investment company, which has been able to gain market share from bank-backed investment firms established in the 1970s. “Our roots are in Saudi Arabia, so the family feel they have a duty to the local society,” said Bafakih.
Addressing local unemployment
Nurturing local talent among a young Saudi population is something the firm is actively involved with. MASIC has developed strong links with local universities and colleges, offering the sort of compensation packages likely to attract high-quality local graduates. The government has been addressing the kingdom’s well-documented skills shortage by investing heavily in education and vocational training.
Such reforms, aimed at bringing down high youth unemployment, have enjoyed a degree of success. The Labour Ministry recently reported that the number of Saudi citizens working for private companies has doubled in the last two and a half years. “We need to get more of our locals working for the private sector. Yes, there’s a need for people to receive the right kind of education, but there’s also a responsibility on companies to hire local talent. You find some companies want to hire less expensive, foreign labour, and that’s something that needs to change,” according to Bafakih.
“At MASIC we have a policy of working with educational institutes, aiming to network with universities and be in touch with talented locals. Companies must offer good benefits and professional development opportunities in order to compete with government jobs and attract young Saudi nationals.”
The company has every reason to be optimistic about the future. Its three-pronged approach to generating returns, through asset management – including equities, fixed income and private equity funds, direct investment and real estate – has proved highly successful. Bafakih said the company will continue to focus primarily on domestic markets while at the same time increasing its rapidly expanding foreign portfolio. “A lot of our growth is down to a strong Saudi market,” he said. “But the larger you grow, the more global you want to become, so we definitely want to increase the international portion of our assets.
“We’re not trying to double the money next year, we have a focus on generating income through things like real estate,” Bafakih explained. “We have a large amount of investment in office space, and we have companies that do residential leasing, for example. “Our recent expansion in the services sector catered to logistics. While Saudi Arabia is the most advanced in the industry regionally, it falls behind in logistics.
“Our recently launched initiative will cater to this gap in our local offering. “We have a long-term perspective. We’re not a hedge fund or a fly-by-night operation, we want to still be around in three or five hundred years Insha’Allah [God willing].”
With a new management structure in place, a growing portfolio of global and domestic assets, and a strong reputation for building successful long-term partnerships with stakeholders, Bafakih sees no reason his company won’t be a premier Saudi investment firm, deploying strong investment practices delivered by a team of professionals all sharing a common set of values.
“We feel we are in a very strong position indeed,” he said. “Although our heritage and the legacy of our founders is central to what we do, we are moving with the times, always adapting to a constantly evolving business landscape. I believe that’s what makes MASIC unique and gives us our competitive edge.”
