We’re going on an IPO!
ME PoV Summer 2015 issue
Becoming a publicly listed company is a milestone in the life of any organization. The rewards for achieving such a development are undoubtedly very compelling, but the journey is also fraught with challenges that require a substantial commitment of time and resources on the part of the business, not only to aid in the transformation process but also to fulfill the expectations of external stakeholders once the company is listed.
Family businesses, are you ready for the IPO? The decision to seek an IPO is typically driven by both financial and non-financial considerations, with the former including access to broader funding, facilitating an exit for a partner and realizing financial gains, and the latter improving a company’s profile, enhancing the founders’ reputation and achieving a legacy for future generations.
For family businesses, one of the main attractions of an IPO is to aid in succession planning through the enforcement of certain corporate disciplines that come with being a regulated entity. Although the GDP of the Middle East is largely oil-based, family businesses are the second biggest contributor to GDP, with an estimated value of US$1 trillion.1 With the majority of family businesses expected to be passed down to the next generation within the next ten years, succession planning will have a major impact on the way Middle Eastern businesses and economies will evolve during this period. Studies indicate that, globally, only one in ten family businesses survive to their third generation. This issue is even more relevant in the case of Middle Eastern family businesses, which are, on average larger and more diversified than their American and European counterparts.
GCC market regulators have been increasingly promoting IPOs as the regional markets continue to mature. In June 2015, Saudi Arabia opened up the capital markets to foreign investors. As such, the IPO market has been very active recently with several successful family offices listing on either regional or international markets as highlighted in the table below. While the timing of an IPO is critical, it is even more critical to the success of the IPO that the business is ready when the market opportunity presents itself. Hence, it is never too early to start preparing for this milestone.