Ipic-Mubadala merger does not have to follow a template

Ipic and Mubadala, two major Abu Dhabi investment funds, have been mandated to merge. The outcome does not have to be a single company. In this article I will look at an innovative option for the Ipic-Mubadala merger to result in more than one company and how such a multi-result merger can support Abu Dhabi’s Economic Vision 2030.

I recently wrote in detail on what strategies the NBAD-FGB merger could take and in a subsequent article I delved into a major challenge such a merger might face. The detail was possible because both NBAD and FGB are listed companies and have strong disclosure requirements.

When discussing Ipic and Mubadala, we are talking about two privately held institutions and as such there is less public information at this time. This does not stop us from conducting a thought experiment, if you will, to try to understand the options available.

The key issue we will look at today is that a merger does not have to be about acquiring market share or new business lines. A merger can be about rationalisation and refocus.

If you want to know where you might go you need to know where you are, and if you want to know where you are then you need to know where you came from.

Ipic stands for the International Petroleum Investment Company. Just from the name, its mandate when it was formed in 1984 is clear. It has a wonderful web page describing the hydrocarbon chain, making it clear how Sheikh Zayed had the vision very early on to expand our focus on our greatest financial asset at the time, crude oil, to include many different parts of the petroleum sector.

The investment portfolio clearly reflects that vision. Yet in recent years Ipic has grown from an institution investing internationally and in the hydrocarbon sector to investing in multiple asset classes, not only internationally but domestically as well.

Is this bad? A clear answer requires knowledge of the internal strategy of Ipic. My view is that a strong investment vehicle with an intelligent and proactive team started seeing attractive opportunities outside its mandate, and as such Ipic evolved into a broad investment manager, in particular using its subsidiary Aabar. That is where we are today.

Mubadala is the brand name for the Mubadala Development Company. Again, the name says it all. Its vision is to support Abu Dhabi’s ambition to transform its economy and develop a new generation of leaders. Again, its portfolio predominantly supports this vision. But once again we see investments that seem to be more about a pure financial return. Indeed, there is even an interactive portfolio on its site that has as one option “capital investments”.

Again, the question of whether there is something wrong with this comes to mind. Without detailed information, my best guess would be no, that in fact a team of smart asset managers saw opportunities and took them.

Ipic and Mubadala have shown the ability to innovate and evolve that pushes economies forward. But the shareholder, the government of Abu Dhabi, has its own plans. In the end the entrepreneurial spirit shown by Ipic and Mubadala needs to be aligned with Abu Dhabi’s Economic Vision 2030. The government did not micromanage its portfolio companies, and that is a good thing. But it has macro-managed them and should continue to do so.

Now that we know where we came from and where we are, let us talk about where we can go. The idea of creating a super sovereign wealth fund with multiple departments has been discussed by others. I would like to consider a different idea.

If you read Vision 2030 and add to it some simple analysis, it seems that there is a three-pronged strategy. The first is managing our large, albeit depleting, crude oil assets – think Ipic, Adnoc and the Supreme Petroleum Council (SPC). The second is managing our large, and hopefully increasing, financial assets – think Adia and Adnic. The third is developing our people and economy to become self-sustaining, think Mubadala. Such a strategy clearly makes sense. So how to enhance it?

My view would be to look at the Ipic-Mubadala merger as three-phased. The first phase is to restructure along business lines. It makes far more sense for Mubadala to hand over energy assets to Ipic and Ipic to hand over development assets to Mubadala. They both should hand over their purely financial investments to Adia or Adic as might be necessary.

The second phase is learning from each other. We always talk about global best practices. Well, Ipic and Mubadala are both global and I have no doubt that they not only follow best practices, they evolve them.

The third phase would be a rebirth, with Ipic reborn as the Global Energy Investment Company (GEIC) and Mubadala refocused on its economic and leadership development.

An endnote: I spoke about the three-pronged strategy and the need for the occasional rationalisation of subsidiary entities. We seem to have a framework for that; it just needs a little further to go. For oil, or energy, the SPC’s governance mandate could be widened and have Ipic or the newly formed GEIC report to it. For development we already have the Executive Council, which oversees Mubadala and many other institutions, which also could be rationalised as part of Mubadala. We are missing a Supreme Investment Council to oversee and rationalise the likes of Adia and Adic. If we have an SPC for our depleting asset, shouldn’t we have an SIC for our accreting asset? Just a thought.

Sabah Al Binali is an active investor and entrepreneurial leader with a track record of growing companies in the Mena region. You can read more of his thoughts at al-binali.com.


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