Arcapita Acquires Varel in Deal Valued at $369 Million

Arcapita Inc., a leading private equity investment firm, announced that its affiliates have signed a definitive purchase agreement to acquire Varel Holdings, Inc. from KRG Capital Partners for approximately $369 million. Varel is the world's fastest growing manufacturer of drill bits for the oil and gas, and mining and industrial industries.

Headquartered in Carrollton, Texas, Varel produces polycrystalline diamond compact and roller cone bits for the oil and gas drill bit market, as well as roller cone bits for other mining and industrial applications. With operations and sales offices in 41 countries, Varel serves a broad range of national and multi-national oil and gas companies and generates 50 percent of its revenue outside North America.

Stockton Croft, Director at Arcapita, said, "Varel's growth is being driven by excellent industry dynamics, superior customer service and a talented and highly experienced management team. In addition, Arcapita is excited about the opportunity to assist Varel in expanding its presence in the important markets of the Middle East, where Arcapita's local knowledge and extensive contacts will be a major competitive advantage for Varel."

Jim Nixon, Chief Executive Officer of Varel International, stated, "We are excited about continuing our growth journey with our new partner Arcapita. We look forward to leveraging Arcapita's strong relationships in the Middle East and to expanding our global position in Energy and Mining applications."

The transaction is expected to close in the fourth quarter of 2007 and is subject to regulatory approvals and other customary closing conditions. Lehman Brothers Inc. is serving as exclusive financial advisor to KRG Capital Partners and Varel, and is providing senior debt and mezzanine acquisition financing for the transaction. King & Spalding LLP is serving as legal advisor to Arcapita in the acquisition, while Hogan & Hartson is representing KRG Capital Partners.

Arcapita Inc. is a wholly owned subsidiary of Arcapita Bank B.S.C.(c), which is a global investment firm with offices in Atlanta, Bahrain, London and Singapore, through which it sources investments for its corporate (private equity), real estate, asset based and venture capital lines of business. Arcapita's corporate investment line of business was founded in 1997 and operates out of Atlanta, London and Bahrain. To date, Arcapita has completed 61 transactions with a total value of more than $19 billion.

Founded in 1947, Varel International is the world's largest independent manufacturer of drill bits. Headquartered in Carrollton, Texas, Varel services oil & gas, mining, and industrial markets with its comprehensive suite of roller cone and fixed cutter drill bits. The Company employs 1,000 people and has manufacturing facilities in Carrollton, Texas; Houston, Texas; Matamoros, Mexico and Tarbes, France, as well as sales offices throughout the world. Varel's proprietary design capabilities, efficient manufacturing, and global sales force uniquely positions the Company to provide high-quality drill bits that deliver excellent performance and value to its customer base.


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