[UPDATE 24/5/17:] Emaar Malls at the behest of Mr. AlAbbar has acquired a 51% stake in Namshi, the e-commerce apparel business, adding yet more scope for conflict in his involvement with competing businesses.
His achievements so far are a stake in online luxury retailer Net-a-Porter, another in logistics firm Aramex, the (imminent) launch of a diversified e-commerce platform Noon.com and its recent acquisition of JadoPado, and last week a new stake in Middle East Venture Partners (MEVP), one of the region’s leading Venture Capital fund managers.
- Luxury retailer
- Logisitics firm
- Diversified e-commerce platform
- Venture Capital firm
Two questions keep coming up at Baizat.net HQ:
- Does AlAbbar have a coherent strategy?
- Is it possible to look past the growing number of potential conflicts given AlAbbar’s increasing involvement in different and possibly competing initiatives?
A reasonable answer to the strategy question is difficult to formulate at this stage, considering the ink needs to dry on most of these deals. It does however appear AlAbbar has adopted the “throw everything at the wall and see what sticks” approach.
He’s getting exposure to the regional technology theme, but the exposure is fragmented, disjointed and in many ways hugely conflicted. This brings us to the second question, are investors aware of the growing conflicts of interest?
The first conflict of interest is that AlAbbar is still Chairman of Emaar Properties and Emaar Malls. It’s no big secret that online retail is competing head-on with physical retailers. It concerns us that AlAbbar is plowing his own money and that of his undisclosed investors (if the Public Investment Fund is half, who is the other?) into e-commerce via Noon.com. Does he care about the future of Emaar Malls as much as its current shareholders do if he’s now building a faster growing, less-capitally-intensive retail platform himself?
Furthermore, as he announced Noon.com in November of 2016 how can he then propose a couple of months later in March 2017that Emaar Malls acquire Souq.com for $800mn?
In the event that the bid was seriously considered, AlAbbar’s access to Souq.com’s proprietary data during a due diligence period would potentially put his Noon.com initiative at a huge advantage. He would have access to supplier information, staff related data, business model secrets, key performance indicators on which segments are the most attractive to pursue and tons more. Even though the deal didn’t go through (thank you Amazon), as an Emaar Malls shareholder we’d be very concerned by this behavior.
Next up, AlAbbar is now an investor in MEVP (the manager of MEVP funds). This means he’s a General Partner (GP) of MEVP. As a GP we presume he gets access to data across MEVP’s portfolio, including several companies which are in the B2C, e-commerce and payments space.
What if this insight and data helps AlAbbar with his independent efforts at Noon.com? What if that edge makes Noon.com benefit at the expense of the startup in the MEVP portfolio that other investors are exposed to? How can MEVP justify that to their investors?
Perhaps of greater importance is access to MEVP’s future pipeline. We presume AlAbbar will have at least some insight into this, it would be naive to think otherwise. This raises a whole series of questions around possible conflict.
If we’re an MEVP LP (an investor in their fund) how do we feel about having my future deals also seen by AlAbbar? What if a great startup finds its way into MEVP’s pipeline. How do we know AlAbbar doesn’t front-run MEVP and invests or acquires the company for Noon.com instead? What if we’re a Noon.com investor, and AlAbbar decides to acquire an MEVP portfolio company? How do we structure the deal and reach a fair valuation?
There might well be governance policies in place at MEVP, but this seriously smells bad. Would we really know if AlAbbar picked off a few good deals for himself and his undisclosed investors or overpaid/underpaid to suit his situation? Which hat is AlAbbar wearing on which day of the week – your guess is as good as ours.
Our two cents is that MEVP should know better. They should have stayed independent or if they needed capital and strategic support, then settled for a less conflicted entity such as Majid Al Futtaim, who recently appeared in Fetchr’s Series B round.
When AlAbbar bought JadoPado (via Noon.com) it was a portfolio company of BECO Capital. We presume he must have also had conversations with BECO around taking a stake in their GP. We wonder how those went. Were BECO Capital any more aware of the scope for conflict?
The bottom line here is that MEVP investors should be raising an eyebrow with the management’s decision to let someone like AlAbbar into the GP.
Next up is yet another potential conflict that is much more subtle. Many readers are likely unaware of another entity that is backed by several investors, including AlAbbar. Allied Investment Partners (AIP) started with a mandate to predominantly make international investments in private equity, real estate and other funds. It was initially managed by former executives from National Bank of Abu Dhabi but has since adopted both new focus and management.
One of their mandates today is to advise on, and arrange deals in the technology space, locally and internationally. AIP raises capital for these deals, gets paid fees for doing so and may invest in them. This means AlAbbar has access to another entity which can raise money for competitors of MEVP’s portfolio companies, can potentially invest in MEVP’s pipeline and could even earn fees on identifying startups for Noon.com to acquire. What a tangled web you weave Mr. AlAbbar.
Nothing Fishy, Yet
Now, just to set the record straight. We don’t believe that AlAbbar is out to consciously exploit his involvement in Emaar, Noon.com, MEVP and AIP to explicitly benefit himself.
If anything, we believe he’s just frantically trying to make the biggest evolutionary leap of his career. This transition is better described as re-invention, as he’s moving into a field that places more emphasis on digital than physical, and one which is much more open to competition, locally and globally. At Emaar, government backing meant that the best land banks could be accessed on favorable terms. Project planning and permission was fast-tracked as there was an implicit ruler’s backing in everything the group did. In the digital world the playing field is much more level. Though AlAbbar’s Noon.com project is partly backed by Saudi Arabia’s Public Investment Fund, we ask: How much strategic value does that bring to the table? We argue far less than if it were a real estate business.
The primary reason we wish to highlight the conflicts above, however, is that we’re tired of the weak governance culture across much of the Middle East, and now see it permeating our youngest and most promising sector: technology.
Highlighting these issues, we hope to raise awareness and illustrate how important it is for investors to always be aware of possible conflicts.
In what you read and what you do, identify conflict and seek alignment of interest.