Family is the core of Arab society. It is no coincidence then that family businesses are the backbone of its economies. In fact, most private companies in the Gulf Cooperation Council (GCC) are family-owned (more than 60% and 90% in (the Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE) respectively)1,2 and there is no indication that this will cease to be the case in the future.
Historically, family businesses - whether they first started in retail, trading, manufacturing, construction, or any other industry - have grown through expansion of operations and diversification fuelled by the oil boom, relatively restricted competition, strong networks, and privileged access to lending from financial institutions.
More recently, the region has faced an oil crash, a global pandemic, increasing competition, a digitization agenda, the introduction of new laws and regulations, and the advancement of stronger governance in addition to an ever-growing and more demanding population. It is fair to say that the only constant in the past decade has been change itself. With that, family businesses had to become leaner, more adaptable, and competitive and have either already evolved - or at the very least realised and admitted the need to evolve - through generally better practices in finance, digital, governance, capital structuring, and business planning (more on this later). Looking forward, it seems that the only certainty in our times is uncertainty which further suggests the need for family businesses to be resilient in the face of unpredictability.
Vision 2030 in Saudi Arabia and similar endeavours in other GCC countries are essentially government-led programs centred around improving the standard of living of its citizens and residents through a relentless and sustainable socio-economic transformation. Vision 2030 aspires for an "ambitious nation committed to efficiency and accountability at all levels, including building a government that is effective, transparent, accountable, empowering, and high performing."3 The nation's family businesses should be no different.
At every family business level - and again similarly to the drive behind Vision 2030 - the owners themselves must want, oversee, push, and ultimately see through all transformative actions. "Transformation" is of course easier said than done, however with the current prevalently encouraging environment, it becomes more a question of willingness rather than ability.
By adopting an attitude of continuous improvement and setting up for sustainable growth, family businesses would position themselves well not only to weather storms but also to harness opportunities for long-term success. This mindset becomes even more important at a time when a family business may be looking to make arguably one of the most challenging and rewarding of strategic leaps: An Initial Public Offering (IPO).
Right Place Right Time
Going public may bring along many benefits to family businesses; the least of which is immediate access to cash to capitalise further on the evolving economic landscape and opportunities at hand. This step may also catalyze the family to enthusiastically drive the agenda for corporatisation and better governance. It also brings along a sometimes severely lacking and much-needed sense of discipline to the family establishment. Beyond the business itself, the IPO is an opportunity for the family to give back to the wider community with the average qualified individual investor standing to gain as well.
Nowhere is this more evident than in the local financial markets. The number of listed companies in KSA for example has increased from 188 firms at the end of 2017 to 269 in 2022 according to a statement by a representative of the country's financial regulatory authority.4 KSA's parallel equity market "Nomu" (Arabic for "Growth") - introduced back in 2017 - also provides additional sources of funding for issuers with lighter requirements and the possibility of transitioning to the main market at a later stage.5
For family businesses, more so than any other institution, embracing IPO readiness is not only a response to changing times but a proactive step towards leveraging the momentum of the country's socio-economic progress.
Building a Foundation for Success
An IPO is a significant milestone; however, it is not the first step in the journey to growth and success. It is critical that businesses establish early on a firm foundation for sustained success beyond the IPO (and even irrespective of it) and thereby efficiently positioning themselves for enduring prosperity by:
- Identifying challenges and gaps between the "As Is State" and the desired "Future State;"
- Proposing actionable steps and strategies to bridge the identified gaps;
- Defining responsibilities, timelines, and required resources for each strategy; and
- Tracking progress regularly as strategies are implemented.
Family businesses (particularly those of relatively smaller size and complexity) can tick off more than one box through the IPO readiness exercise by taking measures to lay the foundation for the IPO process while simultaneously ushering in carefully planned and executed transformation initiatives and becoming better suited at facing challenges when they will undoubtedly come along. This can take place through three key pillars:
Pillar I: Enhanced Governance
- Organisational Structures: Evaluating the current organisational design to ensure it is efficient, scalable, and suited for a sustainable publicly traded company. Incorporating any necessary adjustments to roles and responsibilities and additional hiring.
- Governance Policies: Developing and implementing governance policies and procedures that are in compliance with regulations and are effective for decision-making.
Pillar II: Financial Excellence
- Financial Reporting and Analysis: Ensuring the preparation of 1) accurate and transparent financial statements that adhere to relevant accounting standards; and 2) monthly management accounts and actual versus budget workings that can provide detailed financial analysis to highlight key performance indicators and trends.
- Finance Function Augmentation: Evaluating the finance team's capabilities and structure. Identifying skill gaps and making key hirings through guided recruitment to create a strong finance function that can run the day-to-day financial needs of the organisation as well as comply with the requirements of listing including quarterly, semi, and annual reporting – wherever applicable.
Pillar III: Strategic Transformation
- Business Planning: Developing multi-purpose, robust, commercial business plans including short to medium-term cash flow forecasts. These would articulate the company's vision, mission, growth strategies, market opportunities, and operational initiatives and would instil investor (and creditor) confidence by demonstrating a clear path to value creation.
- Roadmap Development: Defining transformation initiatives needed to drive the business from its current state to the strategically envisioned future. Collaborating closely with stakeholders to identify key transformational elements, mitigating potential risks arising from uncertain and changing market dynamics. Putting in place detailed roadmaps that encompass cost-benefit analysis, precise timelines, and initiative leaders with the goal to achieve disruptive growth and enhance transaction value and return to shareholders.
As family businesses embark on their transformation journeys, they would not only do so to secure the future of their businesses and that of their families' younger generations but also end up contributing to the narrative of a region in perpetual progress.
At Ankura, our experts bring acumen and a depth of knowledge gained from careers spent in executive-level decision-making roles at companies and consultancies across the Middle East. Our senior hands-on team can help protect, create, and recover value while providing end-to-end solutions and unwavering support to guide you toward the successful realisation of your strategic objectives including IPO Readiness... and beyond.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.