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The Good and The Great

Dr Ahmed Heikal, Citadel Capital

September 2008

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 privatisation 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 company to portfolio company. To drive growth, we must instead take into consideration the interests of the companies, their limited partners, portfolio companies, employees, communities and even the economies in which private equity houses do business.

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

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

Good private equity companies benchmark compensation packages at the company and at portfolio companies against others in the industry. Great private equity companies 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 companies ensure they meet minimum standards of good governance. Great private equity companies separate management from board-level functions, thereby ensuring everyone’s interests are aligned, in harmony and protected.

Good private equity companies understand that corporate social responsibility programs are an expected part of doing business. Great private equity companies 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 companies work to manage relations with government ministries and agencies. Great private equity companies, 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 in Egypt.

This article first appeared in on 22 June 2008.

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