Future of Alternatives 2025: Make Way for Mezzanine in Africa and the Middle East

Private debt is new to the region, but Omar Rifai at Gulf Capital says a number of GPs are laying solid foundations for future growth in the asset class, putting their faith in carefully structured deals 

Across Africa and the Middle East, mezzanine debt is emerging as a compelling way to invest in fast-growing lower-middle-market companies. We expect private debt to play a big role in private capital markets over the next five years.

While private equity has many attractions, shareholders of many fast-growing lower-middle-market companies that reach $5-10mn in EBITDA are unable or unwilling to take on dilutive capital due to a difference in valuation expectations or private equity’s increasing focus on acquiring controlling stakes. Many shareholders are also unwilling to underwrite an exit for private equity firms through put options and drag rights. 

Gulf Capital has been investing in growth capital in the Middle East and Africa through traditional mezzanine debt, convertible debt, and preferred equity in healthcare, business services, industrials, and TMT since 2012. 

An Attractive Profile 
The value proposition is compelling. LPs can target mid-teen IRRs on an unleveraged basis, a high single-digit cash yield, reasonably low leverage on the underlying asset, and ample protection and rights. Mezzanine managers in the region are developing their track records and a learning curve, mainly in the form of sector selection and structuring, attracting increased interest from investors. Mezzanine offers a way to diversify risk and allocate private capital to growing markets that is complementary to private equity. 

We have been particularly successful backing companies at a clear inflection point, fueling their growth ahead of an ultimate sale to strategic and financial investors or a stock market listing. Gulf Capital’s investment in Amana Healthcare, a leading network of rehabilitation clinics in the UAE, fueled rapid expansion culminating in a strategic sale to Mubadala (see Case Study). 

We also invested in ADES, a leading oil & gas drilling company in Egypt, funding the acquisition of competitors and expansion across the GCC and North Africa. ADES became the clear leader across MENA and completed an IPO on the London Stock Exchange in 2017. 

Adapting Private Debt to Emerging Markets 
In emerging markets, the lines in the capital structure can easily be blurred. Our markets are more susceptible to long macroeconomic cycles and often lack clear credit protection laws. This creates a natural barrier where competition is limited, as experience and familiarity in navigating local markets are key to success. 

Having invested in 16 companies operating in 10 jurisdictions across Africa and the Middle East since 2012, we have established a framework to understand how to structure mezzanine investments in our markets. Clearly defined investment criteria, sector focus, structuring, and the ability to assess unintended equity risk are critical to generating attractive returns. A hands-on, private equity approach to due diligence and portfolio management is important. Across our portfolio, the decision by shareholders to take on less dilutive growth capital paid off for the company, while our investors benefited from high double-digit IRRs, a great cash yield, and downside credit protection.

About Gulf Capital
Omar Rifai is a Managing Director in the private debt team at Gulf Capital, one of the leading alternative asset management firms in growth markets, investing across private equity, private debt, and real estate. It currently manages over AED 11bn ($2.5bn) across seven funds and investment vehicles. Gulf Capital’s mission is to grow capital and build value with world-class expertise and best practices to generate sustainable superior performance for all stakeholders. 

For more predictions and projections on the future of the alternatives industry, visit Preqin's Future of Alternatives 2025 Content Hub.