Most regional family businesses unlikely to go public

The survey by Ernst & Young covered different aspects of family businesses. (PATRICK CASTILLO)

Only 20 per cent of family businesses in the Middle East are planning to go public, a survey by Ernst & Young has revealed. Yet half the companies quizzed agreed that such a move was important to their survival.

Twenty per cent opposed the idea and the remaining 60 per cent were not committed, according to the first Ernst & Young Family Business Survey. The survey covers different aspects of family businesses, including strategic planning, organisation structure, governance, human resource alignment, operational excellence, management and ownership transition, succession planning and communications.

It examines the state of family businesses in comparison to others and fills a research gap on this topic in the region. Half the businesses surveyed have annual revenues above $100 million (Dh370m), 17 cent have annual revenues of over $500m while only eight per cent are publicly traded.

A majority of family businesses surveyed are run by second-generation entrepreneurs – 73 per cent – followed by first and third-generation owners at 48 per cent and 20 per cent respectively. Only 16 per cent feel there is a well defined succession, management and ownership transition plan, pointing to a serious gap in this area.

"The survey examines the businesses' current state and gives the participants a chance to reflect on their own strength and weaknesses in light of key challenges common to them," said Rami Nazer, partner and head of Ernst & Young's Middle East Family Business Centre of Excellence.

Omar Bitar, managing partner, Advisory Services at Ernst & Young Middle East, said: "When we see 68 per cent of the respondents declaring that their management team is selected purely on the basis of competence and not on relationship, we can conclude that the majority of regional family businesses are mature and practical in terms of appointing management.

"They realise that professionalisation of management structures and adoption of global business processes brings long-term value to the business. The fact that 40 per cent of family businesses have non-family members on their board suggests they are opening up to new ideas and are willing to accommodate differing perspectives."

Some 46 per cent of businesses surveyed were established in the 1960s or before while all of those employing more than 5,000 people were founded in the 1960s or before. Age does not play a major role in the strength or weakness of a family business. However, older businesses are more concerned about upcoming challenges.

"As family businesses grow older and larger, they have to deal with increased levels of risk and complexity that global companies already have the processes for," added Bitar.