Arcapita nets $362M profit, to invest $1B

One of Atlanta’s biggest buyout firms earned a record $362 million in profits last year, even as the credit crunch halted most private equity deals.

Arcapita, whose portfolio includes such companies as Caribou Coffee, Church’s Chicken and PODS, a moving container company, saw its profits rise 90 percent in fiscal 2008 (which ended June 30). The firm earned $190 million in fiscal 2007.

The Atlanta-based private equity firm is bucking broader trends in the buyout business, reporting record profit levels while now planning for long-term growth.

Arcapita has a $5.1 billion in assets and reported operating revenue of $648 million in fiscal 2008, up nearly 60 percent from the year before.

“We’ve had good growth in a turbulent market, and we’re looking to continue that,” said Charlie Ogburn, Arcapita’s Atlanta-based executive director and head of corporate investment.

Ogburn expects Arcapita to invest $1 billion in various deals during the next year, and up to $500 million could be used for U.S. deals.

Arcapita is defying broad industry expectations.

A July report by Dow Jones Equity Analyst, which tracks private equity fundraising, found buyout funds raising 20 percent less through the first half of 2008 than during the first six months of 2007.

Seventy-five U.S. buyout funds courted $85.5 billion in the first half of 2008, down from 91 funds and $107.6 billion last year.

The number of buyouts by private equity firms has also dropped sharply — Ogburn estimates as much as an 85 percent decline — as firms can no longer finance deals through banks and other lenders.

Unlike other private equity firms that court domestic investors, Arcapita relies almost entirely on Middle Eastern investors for its investable capital. The firm then uses that capital for deals on a revolving basis, rather than arrange a series of investment funds.

Arcapita’s investment funds are raised primarily from institutions and high-net-worth individuals in the Gulf, where high oil prices, booming economies and low taxes result in surplus capital for investment,” Ogburn said.

Arcapita also adheres closely to tenets of sharia, or Islamic religious, law. It forbids the firm from investing in certain businesses, like banks or other financial companies that charge interest for customers, for example.

Ogburn said he believes the firm will find opportunities to invest in health- care companies, energy and business services and logistics in the coming year.

With offices in Bahrain and London, Atlanta was the firm’s first non-Middle Eastern office and continues to serve as the hub for all U.S. investment.

Arcapita’s unique placement has made it, along with Roark Capital, one of the two largest private equity firms in the city, dwarfing longer-standing industry peers such as MSouth Equity Partners LLC. Roark, which specializes in franchise companies, owns chains like Cinnabon and Moe’s Southwest Grill.

“They’ve gotten a lot bigger in a very short amount of time, and that’s a huge advantage,” said Ed Fisher, president of Southpointe Ventures LLC, a venture capital investment firm and former chairman of the Association for Corporate Growth’s Atlanta chapter. “But clearly their investors are pleased with what they’ve produced, and that’s the ultimate barometer of success in this business.”

Ogburn, a veteran investment banker who worked at SunTrust Robinson-Humphrey’s predecessor, attributes the firm’s most recent growth to a series of strategic decisions in 2004 and 2005 that diversified its investments globally and beyond a small set of established industries, mitigating what the firm saw as long-term risks to its investments.

The firm opened a London office and began buying companies across Europe, the Middle East and Asia.

“We felt it was important to find that balance, particularly when we’re a global organization,” he said. “Don’t get me wrong. The United States is still our single most important market, but with the federal budget deficit and trade deficit, we felt the dollar might be vulnerable.”



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