Investcorp Sa Business Information, Profile, and History

Company Perspectives:

Since its foundation, Investcorp's mission has been clear and consistent:

To create a working environment that demands integrity and stimulates entrepreneurial spirit, together with a deep sense of responsibility to the firm, its shareholders and its clients.

To achieve market recognition of the firm's reliability, professionalism and accountability in all the products and services it offers.

To ensure the firm's long-term growth and consistent profitability through careful yet imaginative risk and resource management.

To be global in our outlook, organization and operating structure for maximum competitive advantage.

History of Investcorp Sa

Investcorp SA is a globally operating investment group with offices in Bahrain, London, and New York. Since its founding in 1982, Investcorp has defined itself as an investment intermediary, acting as a vehicle to channel the wealth of its Arabian Gulf clients into investments in the United States and Europe. Investcorp's three offices act in tandem, with the New York and London offices identifying investment opportunities, and the Bahrain office placing investment among a pool of clients. The company is active in four primary areas: Corporate Investments and Technology Investments, which each target the North American and Western European markets; Real Estate Investments in North America, with properties ranging from hotels to shopping malls, as well as residential and office buildings; and Global Asset Management, which, with more than $2.8 billion in assets, makes Investcorp one of the leaders in the Gulf region. Led by founder, President, and CEO Nemir A. Kirdar, Investcorp has become best known through a number of high-profile investments, including its purchase and resale of Gucci, Saks Fifth Avenue, Tiffany, and others. Investcorp typically acquires 100 percent control of a company, then works with existing management to expand the business before reselling the company at a premium. Throughout its more than 20 years in business, Investcorp has achieved an average return on investments of 26 percent per year. The company is listed on the Bahrain stock exchange. Kirdar, other employees, and a small group of founder investors retain 59 percent of the company's stock.

Targeting the Gulf in the 1980s

Nemir Kirdar was born in Iraq in 1937. His family had long held prominent positions in the country's government within the Ottoman Empire and later under the Hashemite kingdom of King Faysal. Kirdar himself had gone to study in Istanbul, receiving a B.A. from Robert College in the 1950s. In 1958, when King Faysal was deposed and executed, Kirdar fled to the United States, continuing his education at the University of the Pacific in California.

Kirdar, who had worked as a janitor in order to supplement his scholarship, returned to Iraq at the start of the 1960s to reclaim his family's properties and start his own business, Nemir Kirdar Business Enterprises. The rise of the Ba'athist party, which later propelled Saddam Hussein to power, forced Kirdar to flee Iraq again at the end of the 1960s.

Kirdar and family returned to the United States, and he enrolled in Fordham University's night school program, while working at a bank during the day. After earning his M.B.A. from Fordham, Kirdar took a job as a lending officer with Chase Manhattan Bank. In the late 1970s, as the oil-rich Persian Gulf countries, which had seen their fortunes shoot up following the Oil Embargo of 1973, launched large-scale infrastructure investment programs, Kirdar was assigned to head up Chase's operations in the region.

Kirdar quickly recognized a new business opportunity, as a whole new generation of suddenly wealthy individuals began seeking investment opportunities. Kirdar saw the potential for setting up a business that would act as an intermediary for placing Persian Gulf money in Western businesses. In 1982, Kirdar was backed by a group of investors, which included Bahrainian billionaire Ahmed Ali Kanoo and Sheikh Ahmed Zaki Yamani, then Saudi oil minister.

Investcorp targeted what it considered viable companies with strong existing management that lacked only investment capital in order to pursue expansion. Unlike most investment companies, Investcorp established itself as an intermediary, purchasing a company and then approaching its client base--of some 500 to 600 individuals--with an offer to purchase a share in the investment. Investcorp and its management kept a share of the company, while individual client shares remained limited--not only to protect the client's investment, but also to make certain that no single client achieved a significant shareholding in the company.

Although Investcorp provided assistance to an acquired company's management beyond capital funding, it preferred to maintain its distance from day-to-day operations. Investcorp's acquisitions were generally made to acquire full control of a company; yet acquisitions were considered on the whole as medium-term investments. Once a company's value had increased substantially, Investcorp planned to sell it off, or take it public, usually after only four to seven years.

Investcorp's early investments reflected its diverse interests. Purchases in the early to mid-1980s included root beer maker A&W Brands; fishing boat and yacht manufacturer Bertram-Trojan, acquired in 1985; and Mueller, a manufacturer of fluid control and other plumbing equipment, and the world's leading manufacturer of fire hydrants, in 1986. Perhaps Investcorp's most publicized acquisition of the period came in 1984, when the company paid some $200 million to acquire Tiffany, the famed jeweler, from Avon Corporation. Less than three years later, after restoring Tiffany's lost luster, Investcorp spun it off in a public offering that nearly doubled its initial investment.

Investcorp also began investing in real estate, with purchases including the Manulife Building in Los Angeles in 1986. But its greatest focus remained on its corporate investments, which included the purchase of Club Car, a maker of golf carts, bought in 1986 and sold again in 1988. By then, the company also had begun adding European investments, such as its purchase of the Swiss jewelry group Chaumet, which also included luxury watchmaker Breguet.

Turning Around Gucci in the 1990s

In 1988, Investcorp bought trucking firm Burnham Service Corp., based in Columbus, Georgia. The following year, Investcorp acquired Carvel, the Connecticut-based maker of ice cream products. That acquisition, which cost the company $80 million, was to prove one of the company's least successful, however, remaining in the company's portfolio into the 2000s, with total additional investments nearing $60 million. Another unlucky purchase was that of flooring retailer Color Tile, bought in 1989 and which ultimately declared bankruptcy in 1996.

More fruitful for the company was its investment in Gucci, the famed Italian designer that had fallen on hard times amid wrangling among members of its founding family. Investcorp began building its stake in Gucci in 1987, buying up a 50 percent share, and finally gained full control of the company in 1993. Into the mid-1990s, Investcorp supported Gucci's management as it struggled to turn the company around. As Kirdar admitted to the Financial Times: "Those were some very hard times. We had to pour a lot of money in, and we had some sour days."

In the end, however, the Gucci purchase became one of Investcorp's most visible and most successful investments. By 1995, with the company posting strong profits and especially strong revenue gains, Investcorp cashed out, taking Gucci public. By the time Investcorp had sold off its remaining shares in Gucci in 1996, it had earned some $2.1 billion--on an initial investment of just $246 million.

Another Investcorp investment also was coming to fruition at that time. In 1990, Investcorp had acquired retail group Saks Fifth Avenue; after restoring that company's growth, it had launched Saks' public offering on the New York Stock Exchange in 1996. Two years later, Investcorp sold out its remaining stake in Saks to the Proffitt's retail group.

Investcorp had booked a number of other successful investments during the 1990s, such as its turnaround of the Simmons mattress company, bought in 1996 and sold off again to Fenway Partners in 1998, and Boston-based supermarket group Star Market, acquired in 1994 and sold to the United Kingdom's J. Sainsbury, also in 1998. Another highly successful purchase for the company involved the Circle K convenience store chain, which Investcorp had bought out of bankruptcy in 1993 and then sold a 27 percent stake on the New York Stock Exchange before leading a merger of the group with oil refiner and marketer Tosco Corporation in 1996.

By the end of the 1990s, Investcorp's track record had reached an annualized average of 30 percent on its investments. The company also had been building up a strong assets management business, in a move to produce additional, stable income flow. In 1996, it created a dedicated business unit, Investcorp Asset Management. By 1997, Investcorp's recurrent income generated through its assets management wing had topped that produced as transaction fees for its corporate investment activities.

Adapting for Expansion in the New Century

Whereas Investcorp's focus had been, in large part, North American in the 1980s and at the beginning of the 1990s, its attention turned more and more to the European market in the late 1990s. As Kirdar himself pointed out to Sunday Business: "As far as Europe is concerned, I'm an optimist. Look at the amount of money available compared with the amount of deals there are going to be. There are a lot more deals that are coming up because of the disappearance of borders, the unification of markets and the unification of the currency, plus the conglomerates' tendency to divest."

In 1994, Investcorp boosted its position in the Swiss watchmaking industry with the acquisition of Ebel in 1994. In 1999, the company bundled Ebel with Chaumet in a sale of both companies to luxury goods group LVMH. In Germany, meanwhile, Investcorp acquired Leica Geosystems, supporting the management buyout of that well-known company, before taking it public in 2000. In that year, Investcorp returned to Germany with the purchase of Gerresheimer, a leading manufacturer of specialty glass products. Norway's Helly Hansen was acquired in 1997, in partnership with Orkla. Investcorp also spotted an opportunity in The Netherlands, acquiring Stahl, a leading maker of specialty chemicals for the leather market, in 2001.

In the United Kingdom, meanwhile, Investcorp had acquired Welcome Break, the country's second largest highway service station operator, in 1997, and, in 1998, printing specialists Watmoughs Holding and British Printing Company, which were then merged as the newly named Polestar. The breadth of Investcorp's interests was revealed again in 1999, when the company acquired the specialty chemicals business of AstraZeneca, which was renamed Avecia.

Despite its interest in the European market, Investcorp remained a patron of U.S. companies. In 1996, the company bought CSL Auto, based in Arizona, which operated more than 1,100 auto parts stores. In 1997, the company purchased Wener, the leading maker of ladders and scaffolds in the United States. Harborside Healthcare was added in 1998, followed by NationsRent in 1999, and school affinity products leader Jostens in 2000. The company's acquisitions continued into the new century, and included SI Corporation, acquired in 2000, and water-meter and related products group Neptune, based in Alabama, in 2001.

Throughout its history, Investcorp had avoided, for the most part, the volatile high-technology market. By the end of the 1990s, however, as the company faced increasing competition in the private equity market, it turned its attention to the venture capital market. In 2000, Investcorp set up its Technology Ventures business unit to guide its technology sector investment strategy, targeting primarily later-stage start-ups in the Internet, telecommunications, and IT sectors.

The Technology Ventures segment quickly built up a portfolio of more than 15 companies, including Stratus Technologies, a specialist in continuously available servers, acquired in 1999. The following year, the company acquired the U.K.'s e-business group Aspective; TelePacific, based in Los Angeles; and stakes in Germany's broadband and cable television group, Callahan's Callahan Broadband and Callahan German Cable. In 2001, Investcorp acquired ECI Conference Call Services, based in New Jersey.

Investcorp quickly turned around a number of its technology investments, such as wireless technology specialist 4thpass, which was acquired by Motorola in 2002, and Acta, a maker of enterprise software, which was sold to Business Objects that year as well. The company also merged another early tech investment, US Unwired, acquired in 1999, into Sprint PCS affiliate company Wireless One in 2002.

The difficult economic conditions, including the uncertainty in the Persian Gulf region surrounding the impending outbreak of the second Persian Gulf War, placed Investcorp under pressure. The company responded by emphasizing its real estate operations, with some 20 property acquisitions, backed by sales of 16 properties already in its portfolio during 2002.

At the end of 2002, Investcorp returned to its corporate investment activities, acquiring Aero Products, the leading maker of air-filled bedding products, based in Illinois, in November 2002; PlayPower, a maker of playground equipment in December 2002; and MW Manufacturers, based in Virginia, which manufactured window and door products, a transaction completed in 2003. Having grown into one of the world's leading private equity investment groups, Investcorp looked forward to more deals in the future.

Principal Subsidiaries: Global Strategy Limited (Cayman Islands); Investcorp A.M.P. Limited (Cayman Islands); Investcorp Capital Limited (Cayman Islands); Investcorp Capital S.A. (Luxembourg); Investcorp Financial and Investment Services S.A. (Switzerland); Investcorp Funding Limited (Cayman Islands); Investcorp International Inc. (U.S.A.); Investcorp International Limited (U.K.); Investcorp Investment Holdings Limited (Cayman Islands); Investcorp Ireland Financial Services II Limited; Investcorp Ireland Financial Services Limited; Investcorp Management Services Limited (Cayman Islands); Investcorp S.A. (Luxembourg); Investcorp Securities Limited (U.K.); Investcorp Trading Limited (Cayman Islands); Invifin S.A. (Luxembourg).

Principal Competitors: Kohlberg Kravis Roberts & Co; Forstmann Little & Co.; Sierra Ventures; Golder, Thoma, Cressey, Rauner Inc.; Warburg Pincus LLC; Hicks, Muse, Tate and Furst, Inc.

Chronology

• Key Dates:
• 1982: Nemir Kirdar founds Investcorp, based in Bahrain, as an intermediary investment group to funnel Gulf States wealth into Western investments.
• 1984: Investcorp acquires New York jewelry firm Tiffany.
• 1985: Investcorp acquires fishing boat and yacht manufacturer Bertram-Trojan.
• 1986: Investcorp acquires Mueller, the world's leading manufacturer of fire hydrants.
• 1987: Investcorp acquires 50 percent of Gucci.
• 1990: Investcorp acquires Saks Fifth Ave.
• 1993: Investcorp acquires full control of Gucci; the Circle K convenience store group is acquired.
• 2000: The company forms the Technology Investment business unit as it begins venture capital investments.