Focusing on the fundamentals
Shailesh Dash, Founder & Board Member of Regulus Capital sat down with Banker Middle East to discuss his concept and strategy in investments.
What prompted the inception of Regulus Capital?
We believe the world has significantly changed since the last financial crisis, especially in this part of the world where people want a more direct say in the management and not blindly invest into businesses. They want to be in control of their money and their assets. Although the business is run by the management, as founders and board members of Regulus Capital, we provide the direction, strategic vision and manage the corporate governance of each of our entities.
Regulus Capital (Cayman) and its related entities—Regulus Advisors and Regulus Consultancy—has strived to bring in investors from different parts of the world to grow businesses in the GCC and UAE in particular. This is because all this while, the story has been sovereign funds taking the money out of this part of the world and investing externally in places such as US and Europe. We have gone the other way round in a sense that we try to present investors with attractive investments in this region instead, in places like Dubai, Abu Dhabi, Sharjah, Kuwait, Muscat, Doha, Riyadh, etc. Regulus currently provides its services in four market segments—healthcare (AVIVO Group), education (Al Najah Education), F&B (Diamond Lifestyle) and logistics (Gulf Pinnacle Logistics).
Tell us about Regulus’ healthcare portfolio.
As a group of investors, we have developed/advised a very successful healthcare business called Avivo Group that has produced nine per cent in cash dividends for the last five years. It has significantly grown in terms of its profitability, with 43 healthcare assets employing approximately 1,300 people. Established in 2011, it is currently the second largest clinical chain in the GCC with 43 healthcare facilities, spun across UAE, Qatar, Kuwait, Saudi Arabia and Lebanon.
My outlook on the healthcare sector is very positive but this depends on who you are talking about. For instance, I would not say that that the outlook is positive for the smaller healthcare units such as single doctor private practises/clinics operating in emerging markets. This is because as regulations become stricter in terms of quality control and compliance—in addition to the compulsory healthcare insurance policy in the UAE—these small clinics would need to upgrade their standards on all aspects in order to cater to a more sophisticated market.
In this sense, more often than not, although the doctors are good, smaller clinics would have to close down as they do not necessarily have enough capital to adhere to the demand for better services that are predominantly in line with US/European norms. As healthcare becomes a strategic sector, I believe the rest of the GCC will move towards implementing a compulsory insurance policy similar to Saudi Arabia, Abu Dhabi and Dubai. This is what’s leading the smaller entities to sell out to the bigger companies—a lot of consolidation is happening in this sector. The expectations that both investors and consumers have towards these clinics are increasing on a daily basis. Similar developments are happening in Saudi Arabia, Kuwait, Qatar and other countries in the region.
How has the company’s investment in education grown over the past few years?
In what we do, we would like to very much touch all aspects of the everyday lives of people. So from the time you reach Dubai, we have our logistics team to assist in transporting your belongings, and then to dating—where we have our restaurants, to getting married and having a baby—this is where healthcare comes in, when the children starts school—this is where our education arm comes in, and throughout this journey, as people age, our healthcare facilities play a role here again. This is the concept based on which we have built our ventures from a service and quality perspectives as we try to permeate and impact the lives of people in a positive way.
Every venture that we’ve done or advised is not on the high-end side—in terms of pricing, we are always in the mid-range. We ensure that in all of the businesses that we do, we are a mid-market player, which we believe as a market segment, better caters to the growing demographics and its needs.
Our foray as a team into education began in 2012, where we advised Al Najah to buy its first school—Horizon English School, currently ranked ‘Very Good’ by the KHDA. Today, Al Najah Education has grown to four schools in UAE and Oman and 25 kindergartens in UAE, Oman and Singapore along with several other holistic development centres for children including Learning Centres, Drama Schools and Music Schools.
We aim to touch the lives of children in everything that they do. In achieving this we’ve also provided centres to enhance the capabilities of children in their extracurricular activities—such as music and drama school. We aim to be more involved in the K12 segment where we help to improve both the knowledge base as well as their extracurricular activities. In addition to that education is an important segment for emerging market countries and this includes the UAE. Apart from healthcare, education is one of the strategically important sector focuses of the government and we’d like to be contributing to this.
Al Najah's education facilities are currently in the UAE, Oman and Singapore and this is an area that we are looking to expand into Saudi Arabia, Kuwait, Malaysia and other markets. We expect to get a foothold in the Saudi Arabian and Kuwaiti markets this year.
The standards put in by the government for the education sector is much higher than in healthcare, particularly in places like Dubai and Abu Dhabi—they aim to be the top 10 in the world. This is why the focus on quality is very important today. Regulators are very strict as to who they allow to operate, who they allow to expand, how they rate institutions and the amount charged for each student. This is why I believe that it is more challenging to run a business in the education sector today in the UAE, than any other business—because of all the above factors.
In the next 10 years, the schools that aren’t doing as well in terms of rankings, will eventually fall out. Therefore, every school operator has to improve their quality, strive to be in the top tier to survive in this industry. This business would need continuous investment into the curriculum, facilities, into the teachers and learning attainment (which includes continuous training).
Education is a very serious business for the government and I am very positive on the sector for both parents and children, as Dubai has begun to hold very high standards of education.
Let’s delve into Regulus’ venture into F&B.
To be frank with you, I am a foodie myself. This is the thing that convinced my board and friends to do something in this area—and as you can see in the Gulf, it is one of the many favourite businesses in this region. Food today is very much determined by the customer, the quality as well as demand and supply.
Diamond Lifestyle is an entity advised by us that runs two brands in the UAE—Johnny Rockets, a fast food burger chain and Café Rouge, an all-day French-style bistro.
We are in the burger business—Johnny Rockets—one of the top burger chains in the US, but here, there are over 50 burger brands. The customer therefore has ample choice and market forces determine which restaurant should stay and which should not. Unlike healthcare and education, it is not so much of the regulation that pushes this as it only sets a minimum guideline. Restaurants are being vetted everyday by customers—if you are not the best, you will not survive. The demand and supply here, both direct and indirectly determines the success or failure of a restaurant.
Food is a very popular subject with me and our shareholders, and a large part of the reason why they invest in food is because they love it and they like to be part of a growth story like that. We also invest in food trucks and are expanding into Abu Dhabi, Al Ain and Oman.
However, in terms of competition, this is a very highly competitive industry—unlike that of healthcare and education. This is because every day you’ll have a new exciting/interesting product coming through and the only way to stay ahead is continuous investment in diverse marketing, investor education on the particular food product and making product differentiation. We intend to continue in the fast food segment and make more acquisitions in this area.
Tell us about Gulf Pinnacle Logistics.
The vision of logistics is no longer the brick and mortar story but you have to look at it more holistically within the current environment. Today, logistics is not only about having your own warehouses and trucks in delivering products. Logistics today is more and more about putting people in touch with the services that they need and how fast these products and services can be delivered to them.
Apart from transporting children to and from school (leveraging on our education portfolio) Gulf Pinnacle Logistics (GPL) also have warehouse spaces and have recently signed a term sheet to acquire a courier company which is happening as we speak.
The whole idea is to move into a segment where we can be ready to store someone’s goods and products in our warehouses or directly from the producers/wholesalers and deliver it directly to our customer but this process today includes several activities (chain of activities/processes) and we intend to invest holistically in all those segments/services. Thus we aim to cater to B2B as well as B2C customers. This is important because today, as a logistics player, you are expected to meet all the storage and delivery needs of your clients.
Following the acquisition of the courier company mentioned earlier, we’d love to expand it into the MENA region. We are also in the process of acquiring another logistics business which has presence in seven countries, transporting mostly goods. Having said this, Dubai and Singapore are both key centres for logistic transportation and we intend to advise GPL to invest in both the cities significantly.
How would you describe your competition?
Due to the fact that we are not a private equity player, I do not see much competition. Our strategy is unique compared to the other fund managers in the market. Our investments are in advising companies that we aim to nurture and grow for the long term. The shareholders, their friends, families and management will drive these businesses and these will go on creating employment and quality services for its clients, creating a local champion and economic value for the economy.
We aim to drive as many investors as we can to invest into the Gulf, particularly in the UAE. This is why we do not categorise ourselves as a private equity firm or a fund manager. We consider ourselves as entrepreneurs who like a certain sector and want to build/advise our customers in building sustainable businesses.
Moving forward, this year we are seriously considering a foray into the energy sector (this includes renewables). This is something that we have always wanted to do. Secondly, we are also looking at real estate services—a sector that is developing very fast. We believe that there is a gap here that can be fulfilled by us, particularly in real estate services such as waste and facilities management services.
Additionally, with a little bit of tightening in the financial sector, I think there is a gap that has been formed for SME credit. This is something that we do plan to take forward this year—to address the needs of the SME sector. I believe that there is a space left for the private sector to lend to these businesses.
A general challenge here is getting the right talent to fill up managerial positions and drive businesses across these sectors. Finding the right skilled-person for each sector has always been a challenge.
With our businesses we are currently touching the lives of almost two million people in the GCC and Southeast Asia. We would certainly like to grow this fourfold, to eight million people, by 2020. I believe this can be achieved through energy and real estate services. Our goal here is to meet the needs of the people and improve their quality of life.