Ezdehar eyes USD 200 mn Fund III, with EGX exits back in play

EXCLUSIVE- Private equity fund manager Ezdehar has acquired local fashion retailer Consolidated Group and is folding it into DalyDress, Ezdehar Founder and Managing Director Emad Barsoum (LinkedIn) tells EnterpriseAM. The goal is to build a local retail group with over 100 stores here at home, he tells us. The Egyptian Competition Authority has cleared the buyout, and Ezdehar expects to announce it formally within the next couple of weeks. Consolidated Group operates fashion brands OR, Daniel Hechter, MaxMara, Converse, Outlet Zone, Calliope, and O’Zone. The size of the transaction remains under wraps.

The merged group could eventually make its way to the EGX, Barsoum says, pointing to it and Zahran Market, another Ezdehar holding, as potential IPO candidates now that the bourse is back in play as a serious exit route. Zahran, he says, could be ready for a listing in a couple of years.

We spoke with Barsoum about the transaction, Ezdehar’s Fund III and Fund II, how Fund I turned EGP growth into USD returns, why the EGX is back on the table as an exit, and why local institutions have largely been absent from the space. Below are edited excerpts from our conversation:

EnterpriseAM: Fund II’s investment period ends this year. Where does it stand, and where does Consolidated Group fit in?

Emad Barsoum: We’ve deployed all the money. We’re finalizing the conditions precedent on the last two transactions, so by October or November, Fund II will be fully deployed. One transaction is in the chemicals sector: one of Egypt's top companies, an exporter, with sizable revenue and EBITDA. The other is Consolidated Group, an add-on to DalyDress.

I think it’s the first time a local retail group is becoming a real group that combines different brands. That’s the value a private equity firm adds: creating groups out of small family businesses. DalyDress was a family business, Consolidated was a family business, and now we’re building an Egyptian group with multiple brands that people can be proud of. We found a great group CEO a few months ago, and we plan to grow in Egypt, expand internationally, and open online stores that target consumers outside Egypt.

EnterpriseAM: Last year, you said Egypt doesn’t have an institutional player that owns several local brands. Is that what you’re looking to build?

EB: Yes. Consolidated Group is Fund II, but there’s a lot more to be done there, and it’s part of the Fund III strategy. Family businesses suffer from many weaknesses: cashmanagement, access to banking, but most of all, access to talent. No international CEO or CFO will be excited by a company that makes EGP 50 mn in revenue, and their salary would be a big hit to the P&L. Scale attracts high calibers, and high calibers grow it further. Egypt’s fragmentation is a big weakness. We need bigger groups that have the muscle to become champions.

The other part is exports. Counting on imported raw materials and selling in EGP is a formula that has proven very weak over the past few years. In Fund III, the key is making sure the USD returns are there, either through exports as a hedge or through pricing power. Sectors come second.

EnterpriseAM: Fund III will raise in USD. What size and geography are you targeting, and when do you go to market?

EB: One of the major decisions we made is to keep focusing on Egypt. Unlike many of our peers, we don’t think the wider region is very attractive. Most of the countries around Egypt aren’t stable, and Morocco and Tunisia are crowded with private equity firms. It’s the typical definition of a red ocean. Egypt is still untapped, and I think we have 10 more years of growth here. So the fund will be in the range of USD 200 mn. I don’t think Egypt can handle much bigger funds at this stage.

We haven’t officially started fundraising. We want to bring Fund I to a good close and Fund II to the end of its investment period first, then start in 1Q or 2Q 2027. Most of the institutions we work with have allocations for Egypt and have given us positive signals. Fund II was USD 175 mn, so going to around USD 200 mn isn’t a significant change. I think the first close will be around mid-2027, and the final close by early 2028 at the latest.

We’ll most probably keep the typical five-year investment period and 10-year fund life, though it’s a debate we’re having. Egypt isn’t a super-efficient market where two- to four-year holds are feasible, and holding periods might need to be longer.

EnterpriseAM: Fund I raised USD and deployed before the EGP lost most of its value. Where do the exits stand, and how does that still add up to a USD return?

EB: We sold AluNile a few months ago and Eagle Chemicals just recently. We have two companies left, Rich Food and Al Tayseer Hospital. Rich Food has several interested bidders, Al Tayseer is underway, and we intend to exit both within the next three to six months. We’ve already returned more to investors than the money we called — our DPI is above 1 — so it’s definitely going to be a return even in USD.

We were shocked by the amount of devaluation, like everyone. It’s been a miserable few years, from devaluations to regional conflicts to supply-chain disruptions. Three things got us through. First, exporters: companies with a lot of USD revenue were shielded. Second, pricing power: some companies can pass inflation and devaluation through to prices easily. Third, growth. Al Tayseer was one hospital when we came in, and today it’s two.

EnterpriseAM: Gourmet listed in February, and MNT is IPO-ing now. Is an EGX listing a realistic exit for you?

EB: It’s looking more and more like a good option. It wasn’t the case six months ago, and it wasn’t the case for the past five years. Hats off to our friends at B Investments for the Gourmet IPO. It was courageous and successful, and we need more of that. A few months ago, the feedback from investment banks was very hesitant because of the trauma of past years.

We might IPO one of the two remaining Fund I companies next year, one where we own about 25%. We’d sell our portion, and the original owners might sell down a bit so it’s a good-sized offering. When we raised Funds I and II, we spoke lightly of an EGX IPO. Today it’s a lot more serious. The DalyDress group would be sizable enough, and Zahran Market, which is reaching a good size with good profitability, could IPO in a couple of years.

But the EGX needs more depth. Daily trading is low, the number of listed companies is low, and many companies float only 10-25% of their shares. There need to be more listings and bigger stakes to create liquidity and bring in more investors.

EnterpriseAM: Outside the bourse, who’s buying mid-market Egyptian assets — and has the valuation gap you talked about last year closed?

EB: Most exits today are to other private equity funds, many of them regional or African, and most of them funded by DFIs. The gap is still there. A PE player doing a business plan today factors in all the trauma of the past 10 years: inflation spikes, rate hikes, regional conflict, the FX. Moving the FX closer to a market rate was a great step, but Egypt’s FX problem isn’t solved. We don’t export enough to pay for the food and energy we import. It went down to 46-47, now it’s jumping again to 52, and in a couple of years it’s going to be 55 or 60 because of this imbalance.

EnterpriseAM: With one-year T-bills clearing around 25.5%, can PE funds compete?

EB: Today, you can put your money in treasuries and make 25% at zero risk, so the formula isn’t conducive. What we really need is a large fund of funds that pulls money from local banks, ins. companies, and pension funds — something like EGP 10-50 bn to create the market. When we go fundraising, the first question we’re asked is who the local LPs are. If local institutions don’t invest, why should anyone else? I thought that was the original idea behind the sovereign fund, but I haven’t seen it yet. We did it in Fund II with a small pocket through Avanz Capital, a fund-of-funds vehicle backed by local banks. It’s a very small step, and it needs to be multiplied by 10 or 100.

EnterpriseAM: You went for control in Fund II. Do you still insist on that?

EB: Today I’d adjust my statement: the key is either a great management team, or control so you can bring one in. Great management teams are rare. We have a minority in Yes-Pac because the majority owners, two brothers, are super dynamic and very bright. In other cases, majority is better. Zahran is flying today, and we’ve expanded in Cairo. As a PE player, the imperative to grow pushes you to move faster, take more risk, and inject more money, and a family’s appetite might be different. The success of the family isn’t always the success of the private equity investor.

EnterpriseAM: What do you expect to be able to announce by this time next year?

EB: I’d hope to say we’ve closed Fund III, or are about to. Honestly, it’s 50/50 whether we’ll make it, because of the environment. We’re also thinking about a full or partial exit from Fund II to create some liquidity for our investors. We don’t have any plans yet, but if we managed that by this time next year, we’d be very proud of it.