Local family-owned businesses planning an initial public offering (IPO) are often ill-prepared for shareholder scrutiny, according to a Dubai business leader.
Mishal Kanoo, Deputy Chairman of Kanoo Group, said family businesses in the region tend to be driven to go public by the vanity of boasting an enlarged company from the raised capital.
“It is fashionable. People’s perception of the recipe for success is to go public. This is a wrong perception, unfortunately, that you have to go public to be massive,” Kanoo told Emirates Business on the sidelines of the 2008 World Summit on Innovation and Entrepreneurship (WSIE) in Dubai.
“In any company, specifically family businesses, if they decide to get public money, [they must] be ready for the public scrutiny that comes with it and a lot of them are not ready for that concept,” he said.
Kanoo added that it is more traditional firms that are reluctant to relinquish control. “This is an interesting phenomenon that family businesses are not used to, especially if it is a patriarch of a certain age. To get that person to accept that someone else is going to be questioning him is a very hard pill to swallow.”
New legislation from the UAE Government is expected to encourage more family businesses to go public, as it essentially lowers the amount they are forced to give up to investors.
Changes in the new Companies Law would allow local family-owned businesses that convert into public companies, to retain a maximum stake of 70 per cent and to list a minimum stake of 30 per cent, down from the current 50 per cent.
Nasser Al Shaikh, Chairman of Amlak Finance, recently said the changes resolve the main issue of family businesses’ opposition to going public, which is loss of management control.
Mahmood Ibrahim Al Mahmood, CEO of Al Qudra Holdings, said, the firm will raise $1.2 billion (Dh4.4bn) in an IPO after the new law is finally passed.
Last week, Lebanon’s Makhzoumi family, the owner of Dubai-based Future Pipes Industries, said it plans to sell about 35 per cent of its shares in an IPO, in a sale next month and list on the DIFX.
President and CEO Rami Makhzoumi told Emirates Business that the decision was setting a “critical” precedent to other family-owned businesses in the region.
“Unlike other exchanges in the region, the DIFX offers a minimum of a 25 per cent float. Many family businesses have no real intention to exit… and they have never had the opportunity to reap the benefits of being public without foregoing the majority of their business,” he said.
Kanoo says vanity driving IPO surge