Local venture capital fund shows confidence in Persian Gulf oil, gas sector

Bahrain’s Investcorp, through its Investcorp Gulf Opportunity Fund, has agreed to acquire a controlling stake in Scottish-based Hydrasun with the aim of expanding the UK oil services company’s presence in the Persian Gulf.

The development, announced February 18, marks a vote of confidence in the near to mid-term outlook for the Gulf’s oil and gas sector, despite heightened political tensions across the Middle East and North Africa (MENA) and the continuing global economic uncertainty that is the biggest threat to oil demand.

“It is a strategic acquisition for us as it provides an international company with a bridge into the Gulf,” Investcorp’s president for Gulf business, Mohammed al-Shroogi, told reporters at a media conference in Dubai.

“This acquisition is the result of a continuous effort to bridge international companies with expansion plans in the Gulf’s growing oil and gas sector,” he said.

The precise value of the transaction was not disclosed, but Mark Bandak, Investcorp’s managing director, corporate investment, put it in the range of $150 million to $300 million. Investcorp was acquiring essentially the whole of Hydrasun, except for stakes held by the company’s management, he said.

“We see very attractive future growth for the company and anticipate accelerated growth in the Middle East,” Bandak said.

Hydrasun, which has a network of operational bases in the UK, Middle East, Netherlands, Caspian Sea, Brazil, West Africa and on the US Gulf Coast, specializes in the integration, manufacture and testing of hydraulic equipment and fluid connectors for the offshore oil and gas sector. As such it provides products and services that are used across the sector with additional applications in the petrochemicals industry, a sector undergoing rapid expansion around the Persian Gulf.

“Hydrasun is a dominant player in a niche sector providing low-cost, high-value items,” Bandak said.

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Investcorp, which is listed on the Bahrain Bourse , has $11.5 billion in assets under management and is possibly best known as the former owner of Gucci, provides “alternative” investment products for wealthy clients drawn mainly from Arab states in the Persian Gulf region. Its roughly $1.5 billion of acquisitions over the past 12 months have been evenly divided between the US, Europe and the MENA region including Turkey, and have spanned a number of industry sectors.

The planned Hydrasun acquisition is Investcorp’s second in the oil and gas sector, Shroogi said.

In 2007, the venture capital company acquired technical energy services provider Moody International for $311 million. After expanding the company’s business, especially in the Gulf, it sold Moody to international quality testing group Intertek in 2011 for $730 million.

Typically, Investcorp holds individual investments for between one and six years, Bandak said.

Hydrasun CEO Bob Drummond predicted Investcorp’s capital injection would enable the UK company to pursue strategic acquisitions and accelerate its international expansion.

In a further mark of confidence in the business environment of the Persian Gulf region, as opposed to the MENA region in general, Shroogi said Investcorp had recently opened an office in Riyadh and was planning to open further offices in Abu Dhabi and Doha within the next six months.

“We’ve avoided ‘Arab Spring’ countries,” he said, referring to MENA states including Egypt, Libya and Yemen that have witnessed severe political upheaval over the past two years.

Shroogi said Investcorp would consider further oil and gas-related investments, particularly in the services sector. Compared with producers, he said, oil services company were relatively free from geopolitical constraints with the potential to generate high cash flow from low capital expenditure.

But finding the “right deal” in the varied oil and gas services sector would take time, Bandak cautioned.

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