Every year, 'Time' magazine selects its "Person of the Year", which features someone or something that has most influenced the year's global events, whether in a good or bad way. Historically, the award has been attributed to most US presidents, as well as Einstein, Hitler, Gandhi, the astronauts, the computer and Pope John Paul II, among others.
In 2006, the person of the year was "You", representing the individual online content creator; in 2011, it was the "Protester", representing many global protest movements such as the Arab Spring, Occupy Movement, protests in Greece, India and Russia.
The trend towards the empowerment of the individual is evident. As technology connects people faster, access to global intelligence and visibility is now easier than ever.
Similarly, the rise of the individual investor is affecting the private equity industry. As a result, small and medium enterprises are increasingly using private placements as an alternative to mergers and acquisitions or transactions with PE funds.
Pooling individual investors traditionally happened mainly through PE funds, where fund managers retain most decision-making rights, and investors have no input. In the wake of the global financial crisis, many PE firms have gone bust as their deals turned sour (high valuation multiples paid, excessive leverage or disappointing operational results); others simply ran out of clients as investors lost money and liquidity became scarce.
The void left behind is being filled by other investors, such as private banking clients who participate as a pool on a deal-by-deal basis, by selecting tangible investments themselves rather than delegating to fund managers.
A fertile environment for private placements has developed due to several factors which have simultaneously converged, including: decrease in PE firms, banks' tougher lending criteria, increase in direct PE investment opportunities, SMEs' appropriate deal sizes, availability of information needed for assessing investment opportunities, and more importantly, the emergence of boutique private and investment banks which provide access to these opportunities.
A lot has recently been written about SMEs and their emergence as the best segment to invest in, due to their significant potential for growth; as such, they are increasingly using private placements to fund their growth. What used to constitute investments only from family offices of ultra high net worth individuals has now also become a pooling of much smaller sums, from investors seeking alternative diversification tools such as direct PE investments.
In parallel, banks have also been affected. As global investment banks downsize and cut costs, and as deals become harder to come by, the industry has lost many players and has become very challenging. An investment bank has to clearly add value to its deals and clients, and deliver with excellent execution.
Investment banks that are purely advisory firms are struggling, while pure private wealth managers are finding it more and more difficult to sustain their business in the wake of tough global equity and bond markets and increased cheaper online trading; as a result, surviving in this business takes creativity and innovation.
For the past few years, we at FFA Private Bank have emerged as a regional boutique private and investment bank that is pioneering new ways to generate business and proposing unique attractive investment opportunities to our clients.
We have increasingly been proposing PE deals to our private banking clients through our investment banking platform. Although pooling investors is not a new idea, our structuring and placement capabilities as well as expertise in pooling and representing various investors on a deal by deal basis has transformed us into a de facto PE player in the SME world; more importantly we have built a relationship of trust with our clients.
In particular, the Lebanese fiduciary law facilitates the process and allows us to manage the pool of individual investors. Deal types vary from industries to real estate and even Hollywood movies, and from the region to all over the world. These opportunities attract more private banking clients, which subsequently generate more investment banking mandates.
To thrive in today's challenging financial services environment, the model that seems to have an edge is the boutique hybrid bank which bridges private banking, investment banking, and PE investing. The approach provides a solution to individual investors seeking a comprehensive service of added value in a platform where clients always come first.
Julien Khabbaz is a partner and head of investment banking at FFA Private Bank, headquartered in Beirut, with a fully owned subsidiary in the Dubai International Financial Center (DIFC). Julien has advised on numerous transactions across industries in the region and in New York where he was previously based.
© Zawya 2012
