Big game hunting

Delta Partners was established by a group of ex-Diamond Cluster (now Oliver Wyman) employees in Dubai in the second half of 2006, and has since expanded rapidly in three core areas. Delta Partners specialises in the telecommunications media and technology sectors, servicing the industry through advisory services, private equity and corporate finance facilities. In the middle of this year Delta Partners established an office in Johannesburg, headed up by managing partner Kristoff Puelinckx, who details the rationale behind the expansion.

Johannesburg is not a new city to Delta Partners’ Puelinckx, who says the company has worked with a number of companies in South Africa over the past few years. Hence, it is a natural progression for the company to establish a presence in the country and actively bolt down networking relationships and prospective deals.

“We already have 10 people on the ground and expect to have between 20-25 in the next 12 months,” Puelinckx predicts. “On the advisory side of the business, the reasons why we opened an office in Johannesburg are very clear. First is to further serve our clients in the country, second is as a hub for further penetration into Africa, and lastly is in order to be closer to the investment community of this continent.”

Delta Partners occupies a unique place in the advisory and investment area, being neither completely a management consultancy, nor completely a private equity investor. Instead it is a hybrid of the two, focussed exclusively on the TMT (telecommunications, media and technology) sector in emerging markets.

Initially dismissed as being overly dependent on Zain as a consultancy client, Delta Partners has moved swiftly to diversify the ways in which its human capital utilised, and opening an office in South Africa helps build that case.

“In Dubai there is more money than there are deals. In South Africa it is the other way around. Johannesburg is the financial hub for a lot of Africa, and in our short time here we already have investments in Ghana and Kenya that we are looking at,” Puelinckx reveals.

The ability to cross-pollinate its various arms through activities elsewhere in the business has the potential of being a potent combination in deal-making, and given the relative lack of a specialist TMT investors in Africa, Delta Partners is looking to gain first-mover advantage.

“Deals in the Middle East are expensive, and expectations from sellers are not always realistic,” says Puelinckx. “So this is an ideal time to look more actively at what is going on in Africa. The message we receive is that there is no player like us out here, there aren’t any real private equity specialists in this space.”

The private equity part of Delta Partners’ operations has received a substantial amount of media coverage, having established Delta Capital in Bahrain and launching a regional telecoms investment fund amounting toUS$75 million at the end of 2006.

Kristoff Puelinckx, managing partner of Delta Partners in South Africa says the company is set to have invested between 60-80 per cent of its private equity fund by the end of the year.

The Delta Capital Middle East and North Africa Telecom Fund had to increase the size of its fund to US$100 million having reached its original US$75 million target earlier than expected.

At the time of the launch of the fund in March 2007, the main focus was on niche players along the telecoms value chain, which provided services to network operators. The second focus was set to be on participation in specific licence offers throughout the region.

The fund was established with a target annual rate of return of 25 per cent, focusing on taking minority or majority stakes worth anywhere between US$3 million and US$15 million per investment.

Delta Capital has made two investments to date. At the end of 2007 the firm invested in Karoui & Karoui, an integrated pan-Maghrebian advertising and media company specialising in providing services to telecoms operators as well as to clients in other industries. Karoui & Karoui started out as a creative advertising agency focussing on marketing and branding function in the telecommunications sector.

In June this year, Delta Partners announced a major investment in Karoui & Karoui World by media groups Mediaset and La Quinta Communications.

Following the deal Karoui & Karoui World retained 50 per cent ownership of its television station Nessma TV, with Mediaset, owned by Italian prime minister Silvio Berlusconi and La Quinta Communications, owned by Franco-Tunisian media tycoon Tarak Ben Ammar, each owning 25 per cent.

In May this year, Delta Partners announced it had entered into the Russian telecoms market in collaboration with Richard Branson’s Virgin Group to establish a new broadband access provider, known as Virgin Connect.

Delta Partners invested in Trivon Group, a Swiss-based telecoms holding company providing Internet access services in main Russian regions, jointly with Virgin Group and Eurasia Capital Management. Virgin Connect will provide broadband Internet connectivity, voice and value added services to both residential and corporate markets.

The company, which holds the required licences and frequencies for WiMAX-based services, is currently deploying its WiMAX network in 32 Russian regions including main cities such as Moscow and St. Petersburg.

“By the end of this year we would have invested 60-80 per cent of the capital (in the telecoms invetment fund),” Puelinckx forecasts. “We have an investment period of three years, so there’s still time to build up deals.”

He claims the company has three or four deals in very advanced stages, which could come to fruition in a few months’ time.

Puelinckx also believes there is scope for growth in Delta Partners’ consultancy and advisory business in Africa, and the firm is primed to take advantage of that as well. “It would be advantageous to partner with local players, co-investing with Black Economic Empowerment companies.”