Middle East initial public offerings (IPOs) are on the rise, and the trend is set to continue strong for the foreseeable future. Listings bring more market capitalisation, greater liquidity, and more market activity, attracting investors and promoting the market’s maturation. These factors have made IPOs a key theme of the GCC region’s diversification plans.
Two companies that exemplify the success of the listings frenzy in the region are Spinneys and Parkin, the first two companies to list in the Dubai Financial Market (DFM) in 2024. The two listings were an instant success, with Parkin achieving the highest proceeds in the region in Q1 2024 at $400 million on DFM. The IPO was oversubscribed 165 times, with the highest first-day gain among the quarter’s listings at 35%. Meanwhile, Spinney’s IPO was oversubscribed 64 times, and its proceeds reached $375.7 million.
But what does it take to make a successful entry into the stock exchange? The chief executives of listed companies Parkin, Taaleem and Spinneys answered.
What’s your story?
Journeys begin for a reason, and companies can take fewer steps bigger than the decision to go public. Thus, the first thing investors will ask soon-to-be-listed firms is simply, “Why?” Having an answer to this question is half the work done.
“In my experience, a simple and straightforward equity story sits well with investors, especially retail,” said Muhammad Al Ali, CEO of Parkin. “Parkin’s story is aligned with Dubai’s economic growth and population expansion plans and our legacy with the RTA as an established brand, so these factors supported the retail confidence in our IPO.”
Linking the company’s positive financial performance to that of the GCC region was also the path that Spinneys chose to take when approaching investors. “We were 64 times oversubscribed and that tells the story of this region, particularly Dubai and the UAE,” said Sunil Kumar, CEO of Spinneys. “It is proof that everybody is looking toward this region.”
Select partners with care
The road to a public listing is not one that companies take on alone. The selection of the right banks and partners is one of the first and most important decisions chief executives make in their IPO journeys and one that is often overlooked.
“The turnaround times from the time you decide to do an IPO to the time you list are very short in this part of the world, putting a lot of pressure on all stakeholders, including management,” said Hitesh Asarpota, CEO of ENBD Capital.
The bank has been a key player in many of the region’s IPOs, including that Taaleem Holdings. The Dubai school operator went public in 2022, raising Dh750 million ($204 million) from its initial public offering that was oversubscribed over 18 times. The company’s CEO, Alan Williamson praised the role of banks in the Taaleem IPO, emphasising their strategic partnership in refining the company’s growth story and engaging investors to highlight banks’ role as strategic partners rather than just financial advisors.
“During that incredible process, these deep dives these analysts’ presentations, I really felt that the banks weren’t just financial advisors,” he said. “They became strategic partners, and that is the role that Emirates NBD and EFG [Hermes] have played.”
Engaging investor interest
Investor interest can make or break a public offering. The GCC as a region has access to large amounts of capital, from both institutional and retail investors. Data from DFM showed that 65% of the activity comes from institutional investors. The remaining 35% is activity originating from retail investors, showcasing the strength of the market.
“We are in a region with very deep pockets,” said Prasad Chari, Managing Director of ECM at ENBD Capital. “International investors are coming in because they know there is very strong local demand for these issuances. Eventually, that is your bedrock. Those are the investors who will support the stock once you’re done with the listing.”
When approaching investors, it is important to develop different strategies. Spinney’s CEO stressed how retail investors have a natural inclination towards brands they interact with, perhaps while paying for parking or buying groceries.
“All of us are consumers, all of us understand supermarkets and the value proposition and unique positioning in this market Spinneys has created, so that was an easy thing to translate into everybody’s mind,” Kumar said. “But finding the right ratio of investors from long-term to short-term investors is one of the crucial positions for a company to take.”
In contrast, “we found that the large institutions focus more on data, numbers and of course, valuation when considering their investment decisions,” Al Ali said.
However, it is not enough to craft a compelling story or have robust numbers—personal relationships are often key to ensuring the interest of the “right” investors. Al Ali stressed the importance of getting the right investors involved early on in the process. In order to achieve this, the company held over 250 meetings with key institutional investors in the months and weeks prior to the listing.
“We focused on building great relationships with the key investors, helping them helping them understand the business and meet the management team,” Al Ali said. In the CEO’s view, this was one of the keys to the company’s exceptional IPO performance.
Reaching the right valuation
Pricing and valuation are the two buzzwords surrounding any IPO news piece. In the view of many analysts, the secret behind the success of many of the region’s listings has been the establishment of appropriate share prices and valuations.
“We set an IPO price range that balanced shareholder pricing objectives and attracted the long-term quality investor,” Al Ali said. “This ensures positive after-market performance for all the shareholders.”
IPO pricing is like a game of chess—perhaps the most important step in the IPO process. A company’s financial state, growth potential and competition all play an important role in the selection of a price range. The Middle East as a region is characteristic in that its investors are very focused on dividend yields, making it the most popular valuation metric. Nonetheless, companies are challenging this convention and encouraging a different approach to IPO valuations.
Kumar stressed that the Spinneys story was not focused on dividends. Instead “it is a growth story” that the company was able to articulate to investors. Parkin’ Al Ali agreed. “For Parkin, we were able to innovate by moving away from the dividend yield metric and focusing on the free cash flows,” he explained. “As a result, we successfully increased our IPO valuation.”
What comes next?
An IPO is a critical moment in a company’s journey. Making sure it achieves a strong listing is, very often, critical. At the same time, it’s also the start of a long journey. For this reason, experts advised companies looking to go public to find the right time and focus on the long-term plan. In the Middle East, companies have a story to tell and investors are eager to be part of their expansion. If the steps taken in the IPO journey are the right ones, firms going public can be poised to achieve great success.
