From startup to public company: Building a business in the UAE1 March 2017 Category:
UAE Company Setup
‘Entrepreneur’ is an uplifting word.
It speaks of optimism and ambition, of innovation and gritty determination. Entrepreneurs have pioneering spirits and vision; they spot business opportunities and pursue them with vigour. And for the ambitious entrepreneur, if they can combine inspiration with acumen, a reward for their enterprise may be a successful initial public offering (IPO).
Going public and building a thriving international business is the aim of entrepreneurs the world over. From London to Tokyo, Los Angeles to Hong Kong, New York to Dubai, behind every startup is the dream of making it big with a flotation. And why not think big? Like politics, business is the art of the possible. All the great international companies started small.
Why not your idea, your company?
So here are some of the signposts for success on the road from startup to stock exchange.
Taking stock: The liberal business environment, reinforced by recent legislation to boost IPO activity is encouraging companies to launch in the UAE. Globally there were 1,055 IPOs in 2016, 11 of which were on exchanges in the Middle East. The decision on where to float depends on a lot of factors: listing standards, relevance to the business, fees and regulatory requirements, as well as the quality of institutional investors and the valuation that can be achieved. In view of this, as noted, it is helpful that local listings in the UAE have been boosted by government legislation: the UAE Commercial Companies Law, enacted in 2015, relaxed some of the rules for flotation and is stimulating the local market. As evidence, witness the recent homecoming of two Dubai companies, Damac and DP World, which were previously listed on the London Stock Exchange. Both have now moved their stock to the Middle East, reflecting growing confidence in home markets.
Globally there were 1,055 IPOs in 2016, 11 of which were on exchanges in the Middle East.
Still, it’s a big step for any business to go public, whether locally or outside the region, and involves a great deal of hard work and rigorous planning, not to mention upwards of USD 2m in legal, accounting, listing, filing and other fees. In the run up to an IPO, the business must undergo a comprehensive assessment and checking process to ensure that it is ready to make the transition from private to public. This requires extensive legal and administrative support and a thorough review of, among other things, corporate governance, financial reporting and controls, and management structures.
And there’s no guarantee that post-launch the stock will necessarily start performing well. According to MubasherTrade, which analysed the performance of every company listed on the UAE stock exchanges between 2000 and 2016, only 14 of the 30 IPOs were trading above the issue price/offer price as of February 2016. Nevertheless there were some stellar performers among the 14 mentioned. Agthia, a food and beverage company that listed in 2005, reported returns of 610% up to February 2016, while three other companies generated offer-to-date returns of between 100% and 200% as of the same date.
Following local heroes: And the UAE IPO market has had other notable successes, including Marka, the region’s first publicly traded retail operator, focusing on fashion, hospitality and sports. The group made its historic launch on the Dubai Financial Market in April 2014, with a mission to become a premier brand in the UAE and beyond. The IPO was 37 times oversubscribed, and Marka has seen impressive growth over the last three years. At the time of listing, the company had no outlets and around 10 employees. Today it has 40 outlets, more than 1,200 employees, and overseas interests.
As an example of a local company which typifies the pre-IPO trajectory, take the Al Habtoor Group, a high-performing and versatile company that has grown in parallel with the UAE. It began as a small engineering firm in 1970 and has expanded continuously to become one of the region’s most respected conglomerates. It now has interests in hospitality, automotive, real estate, education and publishing, reflecting the UAE’s economic diversification and the commercial potential available to entrepreneurs. With the numbers in place, and the groundwork prepared, the group is all set for flotation in the near future.
Size and ownership: Even so, an IPO is not right for every business. Whether you’re in the tech sector, luxury goods, transportation or hospitality, the decision to go public will depend on how far your business can scale and whether you’re prepared to share ownership and control.
Once public, you’re answerable to a much wider range of outside interests, and no longer free to run the business solely on your own terms, with limited external scrutiny or intervention. Crucially, to be suitable for an IPO a business needs to have sufficiently large market capitalisation to be deemed liquid by the relevant exchange – ie, it must generate enough trading volume for investors to be able to deal in the stock. As a minimum, Nasdaq Dubai requires all prospective IPOs to have a market capitalisation of at least USD 10m.
As a minimum, Nasdaq Dubai requires all prospective IPOs to have a market capitalisation of at least USD 10m.
In reality, then, public offerings are only suitable for companies with good growth potential, a convincing track record and scope to expand appreciably. But for those that can do it, an IPO sends a strong message to the world about the company, as well as being an invitation for investors to contribute to and share in its future.
An environment for growth: Finally, let’s remember: you don’t have to be sitting on vast coffers of venture capital to achieve startup success. The main thing is to be operating in a political and business environment that fosters growth and rewards enterprise.
So if you’re building your business in Dubai and looking for funding and the right growth culture, you’re in a good place and have every reason to be confident. There’s a relentless energy about the place, a commercial spirit that’s reflected in the skyscrapers and shining malls that have transformed deserts into commercial hubs and attracted foreign investors and business talent in equal measure. There have been financial challenges along the way, but the region is standing firm after some difficult years and the future looks sound.
From October 2020 to April 2021, Dubai will host the next World Expo with more than 180 participating countries and an expected audience of over 25 million visitors. This event is predicted to stimulate business significantly, boosting the economy by USD 23bn. Meanwhile the government’s Vision 2021 growth plan prioritises the creation of an attractive environment for entrepreneurs.
The government’s Vision 2021 growth plan prioritises the creation of an attractive environment for entrepreneurs.
Of course to go public you need a winning idea with real commercial promise. No amount of enthusiasm and astute planning will make an elephant fly. But for those with the right formula, going public will inject cash into the business, help it to grow and achieve both brand equity and kudos. In short, it’s a huge engine for your sales and marketing activity and takes your business to the next level in scale and professionalism.
And the Dubai business environment makes it a great place to grow your company.
So is going public right for your UAE business?
Going public is a mark of distinction and a platform for growth. Whether it is right for your company is a question of timing, finances, market potential, and of course personal ambition. The road from startup to stock exchange is a long and testing one, but for entrepreneurs with determination and a compelling business model it will always be a journey worth taking.
Why not dare to dream?